Ambarella
Annual Report 2017

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One)☒ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended January 31, 2018OR☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from to Commission File Number: 001-35667 AMBARELLA, INC.(Exact name of registrant as specified in its charter) Cayman Islands 98-0459628(State or other jurisdiction ofincorporation or organization) (I.R.S. EmployerIdentification No.) 3101 Jay StreetSanta Clara, California 95054(Address of principal executive offices) (Zip Code)Registrant’s telephone number, including area code: (408) 734-8888Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Ordinary Share, $0.00045 Par Value Per Share NASDAQ Global MarketSecurities registered pursuant to Section 12(g) of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☒ NO ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submittedand posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submitand post such files). YES ☒ NO ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of theregistrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. Large accelerated filer☒Accelerated filer☐ Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒The aggregate market value of the voting and non-voting ordinary shares held by non-affiliates of the Registrant as of July 31, 2017, was approximately $1.5 billion basedupon the closing price reported for such date on the NASDAQ Global Market. For purposes of this disclosure, ordinary shares held by persons known to the Registrant (based oninformation provided by such persons and/or the most recent schedule 13Gs filed by such persons) to beneficially own more than 5% of the Registrant’s ordinary shares andordinary shares held by officers and directors of the Registrant have been excluded because such persons may be deemed to be affiliates. This determination is not necessarily aconclusive determination for other purposes.Number of ordinary shares, $0.00045 par value, outstanding as of March 23, 2018: 33,635,312 shares.DOCUMENTS INCORPORATED BY REFERENCECertain information is incorporated into Part III of this report by reference to the Proxy Statement for the Registrant’s annual meeting of shareholders to be held on or aboutJune 6, 2018 to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this AnnualReport on Form 10-K. 2TABLE OF CONTENTS Page PART I Item 1. Business 5Item 1A. Risk Factors 20Item 1B. Unresolved Staff Comments 44Item 2. Properties 44Item 3. Legal Proceedings 44Item 4. Mine Safety Disclosures 44 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 45Item 6. Selected Financial Data 48Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 49Item 7A. Quantitative and Qualitative Disclosures About Market Risk 62Item 8. Financial Statements and Supplementary Data 63Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 64Item 9A. Controls and Procedures 64Item 9B. Other Information 64 PART III Item 10. Directors, Executive Officers and Corporate Governance 65Item 11. Executive Compensation 65Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 65Item 13. Certain Relationships and Related Transactions, and Director Independence 65Item 14. Principal Accountant Fees and Services 65 PART IV Item 15. Exhibits and Financial Statement Schedules 66Item 16. Summary 95Exhibits 96Signatures 98Power of Attorney 98 3FORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E ofthe Exchange Act. The forward-looking statements are contained principally in, but not limited to, the sections titled “Business,” “Risk Factors,” and“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as elsewhere in this Annual Report on Form 10-K.Forward-looking statements are identified by the use of the words “would,” “could,” “will,” “may,” “expect,” “believe,” “should,” “anticipate,”“outlook,” “if,” “future,” “intend,” “plan,” “estimate,” “predict,” “potential,” “target,” “seek,” “continue,” “foreseeable” or “forecast” and similarwords and phrases, including the negatives of these terms, or other variations of these terms, that denote future events. Forward-looking statements include,but are not limited to, information concerning our possible or assumed future results of operations, competitive position, industry environment, potentialgrowth opportunities and the effects of competition, our market opportunity, our ability to develop new solutions, including our ability to integrate andapply acquired technologies to our solutions, our future financial and operating performance, sales and marketing strategy, investment strategy and theresults of our investments, research and development, customer and supplier relationships, inventory levels, customer demand and our ability to securedesign wins, industry trends, our cash needs and capital requirements, and expectations about seasonality, taxes, and operating expenses. These statementsreflect our current views with respect to future events and our potential financial performance and are subject to risks and uncertainties that could causeour actual results and financial position to differ materially and adversely from what is projected or implied in any forward-looking statements included inthis Annual Report on Form 10-K.Factors that could affect such forward-looking statements include, but are not limited to, risks associated with revenue being generated from newcustomers or design wins, neither of which is assured; our ability to retain and expand customer relationships and to achieve design wins; the commercialsuccess of our customers’ products; our growth strategy; our ability to anticipate future market demands and future needs and preferences of our customers;our ability to introduce new and enhanced solutions; the expansion of our current markets and our ability to successfully enter new markets; anticipatedtrends and challenges, including competition, in the markets in which we operate; our expectations regarding computer vision; our ability to effectivelygenerate and manage growth; our ability to retain key employees; the potential for intellectual property disputes or other litigation; the risks describedunder Item 1A of Part I—“Risk Factors,” Item 7 of Part II—“Management’s Discussion and Analysis of Financial Condition and Results of Operations,”and elsewhere in this Annual Report on Form 10-K; and those discussed in other documents we file with the Securities and Exchange Commission. You arecautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this Annual Report on Form 10-K. We have noobligation (and expressly disclaim any such obligation) to update or alter any forward-looking statements, whether as a result of new information orotherwise except as otherwise required by securities regulations.For purposes of this Annual Report, the terms “Ambarella”, “the Company”, “we”, “us” and “our” refer to Ambarella, Inc. and its consolidatedsubsidiaries. 4 PART IITEM 1.BUSINESSOverviewWe are a leading developer of semiconductor processing solutions for video that enable high-definition, or HD, video capture, analysis, sharing anddisplay. A device that captures video includes four primary components: a lens, an image sensor, a video processor and storage memory. The video processoris the most complex of these four primary components as it converts raw video input into a format that can be stored and distributed efficiently and, in somecases, analyzes the video data to automate processes. We combine our processor design capabilities with our expertise in video and image processing,computer vision algorithms and software to provide a technology platform that is designed to be easily scalable across multiple applications in a variety ofmarkets and enable rapid and efficient product development. Our system-on-a-chip, or SoC, designs fully integrate HD video processing, image processing,computer vision functionality, audio processing, and system functions onto a single chip, delivering exceptional video and image quality at highcompression rates, differentiated functionality and low power consumption. The flexibility of our technology platform enables us to deliver our solutions for numerous applications in multiple markets. We initially focused ourtechnology platform on the infrastructure market, where we were able to differentiate our solutions for broadcast customers based on high performance, lowpower consumption, transmission and storage efficiency and small form factor. Leveraging these same capabilities, we then designed high-performancesolutions for the camera market. As a result of the advantages of our solutions, we became a leading provider of video processing solutions for cameras thatcapture both HD video and high-resolution still images simultaneously.In the camera market, our platform enables the creation of high-quality video content in wearable cameras, automotive cameras, professional andconsumer Internet Protocol, or IP, security cameras, cameras incorporated into unmanned aerial vehicles, also referred to as UAVs or drones, and virtual realitycameras, also referred to as 360° cameras. Our revenue over the last three years has been generated primarily from sales of our solutions for incorporation intospecialized video and image capture devices such as wearable sports cameras, automotive aftermarket cameras, IP security cameras and UAVs. In theinfrastructure market, our solutions efficiently manage IP video traffic, broadcast encoding and transcoding and IP video delivery applications.Over the last several years, we have been expanding our development efforts on computer vision technology that will complement our imageprocessing and video compression technology. We are focused on developing advanced computer vision algorithms and high-performance, low-powerhardware platforms to enhance processing acceleration. In 2017, we introduced our first computer vision chip, the CV1 SoC. We believe that enhancedcomputer vision performance will be critical both to our current video markets, including IP security, wearable and UAV cameras, as well as future marketssuch as automotive OEM cameras for advanced driving assistance systems, or ADAS, and autonomous vehicles, and robotics. To accelerate our computervision development, we acquired VisLab S.r.l., or VisLab, in June 2015. VisLab is a developer of computer vision algorithms and intelligent control systemsfor autonomous driving applications, and we are incorporating its algorithm technology into advanced computer vision solutions for the automotive market,as well as other markets.We sell our solutions to leading original design manufacturers, or ODMs, and original equipment manufacturers, or OEMs, globally. We refer to ODMsas our customers and OEMs as our end customers, except as otherwise indicated or as the context otherwise requires. In the camera market, our videoprocessing solutions are designed into products from leading OEMs including 360 Smart, Axis Communications AB, Avigilon Corporation, CarcamElectronics Technology Co., Ltd., Dahua Technology Co., Ltd., Dajiang Innovation Technology Inc., Denso Ten Limited, Garmin Ltd., GoPro Inc., or GoPro,Hikvision Digital Technology Co., JVC Kenwood Corporation and affiliated entities, Nest Labs (owned by Google), Ring, Inc., Robert Bosch GmbH andaffiliated entities, Thinkware Corporation, and XiaoYi Technology Co., Ltd., who source our solutions from ODMs including Altek Corporation, ChiconyElectronics Co., Ltd., Dynacolor, Inc., Flex Ltd., and affiliated entities, affiliated entities of Hon Hai Precision Industry Co., Ltd., Jabil Circuit, Inc., San JetTechnology Corp., Sercomm Corporation, and Sky Light Digital Ltd. In the infrastructure market, our solutions are designed into products from leadingOEMs including Harmonic Inc., Motorola Mobility, Inc. (owned by Arris Group, Inc.) and Telefonaktiebolaget LM Ericsson, who source our solutions fromleading ODMs such as Plexus Corp. We intend to continue to build and strengthen our relationships with existing customers and also diversify our customerbase. We believe our relationships with leading ODMs and OEMs provide us with insight into product roadmaps and trends in the marketplace, which weintend to leverage to identify new opportunities and applications for our solutions. We sell our solutions worldwide using our direct sales force and ourdistributors, including Wintech Microelectronics Co., Ltd., or Wintech. Sales through Wintech represented approximately 59%, 60% and 67% of our revenuefor the fiscal years ended January 31, 2018, 2017, and 2016, respectively. 5 We employ a fabless manufacturing strategy and are currently shipping the majority of our solutions in the 28 nanometer, or nm, process node,although our most recently introduced SoCs are developed in the 14nm and 10nm process nodes. As of January 31, 2018, we had 706 employees worldwide,approximately 81% of whom are in research and development. Our headquarters are located in Santa Clara, California, and we also have research anddevelopment design centers and business development offices in Taiwan, China, Italy, Japan, and South Korea. For our fiscal years ended January 31, 2018,2017 and 2016, we recorded revenue of $295.4 million, $310.3 million and $316.4 million, respectively, and net income of $18.9 million, $57.8 million and$76.5 million, respectively. We have generated net income in each quarter beginning with the first quarter of fiscal year 2010, and we have generated cashfrom operations in each of fiscal years starting from 2009. Ambarella was founded and incorporated in the Cayman Islands in January 2004. Our registered address is PO Box 309GT, Ugland House, SouthChurch Street, George Town, Grand Cayman, Cayman Islands. The address of our U.S. operating subsidiary is Ambarella Corporation, 3101 Jay Street, SantaClara, California. Our website is www.ambarella.com. You can obtain copies of our Forms 10-K, 10-Q, 8-K, and other filings with the Securities and ExchangeCommission, or SEC, and all amendments to these filings, free of charge, from our website as soon as reasonably practicable following our filing of any ofthese reports with the SEC. In addition, you may read and copy any material we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC alsomaintains a website that contains reports, proxy, and information statements, and other information regarding registrants that file electronically with the SECat www.sec.gov. We also use the investor relations section of our website (http://investor.ambarella.com) and our website (www.ambarella.com) as a means ofdisclosing material information and for complying with our disclosure obligations under Regulation FD. Information on our website is not incorporated intothis Annual Report on Form 10-K or our other securities filings and is not a part of such filings.Industry BackgroundTrends Impacting the Video Content Creation and Distribution MarketsVideo traffic is growing at a significant rate. The market trends that are fundamentally impacting video content creation and distribution include thefollowing: •Increasing Number of Video Capture Devices. Traditionally, HD video was captured using large, power intensive and expensive dedicateddevices. Improvements in HD video capture quality, device size and cost have allowed video capture functionality to be incorporated into abroad range of devices. Today, smartphones, tablets, wearable cameras, automotive cameras, IP security cameras and UAVs, are increasinglyincluding both HD video capture and high-quality still image capture. In addition to the significant growth in the number of devices, newapplications are emerging for video capture devices, including law enforcement, personal security and social media. •Growing User-Generated Content. Historically, most video content was created by media companies, professional studios and largebroadcasters that possessed the equipment, expertise and other resources necessary to produce and distribute such programming. However, withthe proliferation of low-cost digital video devices and greater penetration of broadband connectivity, individuals are playing a greater role incontent creation and distribution. Websites such as YouTube and Facebook have enabled an effective new channel to widely distribute, storeand display video and other rich media. In addition to user-created videos, other user-generated content such as video sharing, videoconferencing and video instant messaging through services provided by Alphabet Inc., Apple, Inc., Facebook, Inc., Skype and Snap Inc., amongothers, are becoming increasingly popular. •Broadband Penetration Enabling the Proliferation of the Video Cloud. The adoption of high-speed broadband and the proliferation ofconnected devices such as smartphones, tablets, laptops, desktop computers and connected televisions have allowed consumers to more easilydownload and share IP video accessed upon demand through the video cloud. The video cloud has led to new business models based onpersonal content such as streaming video provided by services like YouTube. Additionally, consumers are leveraging the video cloud forsecurity by utilizing an IP camera and cloud infrastructure to watch live HD video streaming on any web connected device. This video cloudapplication has enabled expansion of the connected home to include intelligent IP surveillance systems that detect activity and then streamencrypted HD video through secure servers and alert end users. •Advancements in Display Technology. The increasing proliferation of HD displays in television and in mobile connected devices such aslaptops, smartphones and tablets is accelerating HD video content growth. This trend highlights the new paradigm of escalating consumerexpectations of video quality, such that video is comparable to high-resolution still images, which drove the transition from standard definitionto HD, and we believe will drive the transition to ultra high-definition, or UHD. UHD is commonly referred to as 4K video, which supports up to4096x2160 pixels per frame, more than four times greater resolution than the current Full HD standard, which supports up to 1920x1080 pixelsper frame.6 •Requirement for Efficient Video Compression. HD video is increasingly a requirement for consumer video cameras, IP security cameras and forthe broadcast of television programs, whether via cable, satellite or IP networks. Uncompressed HD video requires massive amounts of digitaldata to represent it, necessitating the need for video compression technology to reduce data rates for storage or for transmission of video overnetworks with limited bandwidth. In broadcast television, an upgrade of networks from H.264 video compression technology to the new highefficiency video coding, or HEVC, video compression technology would support the transition of consumers to 4K video. In consumercameras, the efficiency of the encoding has a significant impact on video quality, recording time and battery life. In IP security cameras,encoding efficiency is important for realizing the highest image quality possible over bandwidth-limited networks, and for minimizing thecosts of cloud-based storage of video content. Additionally, the ability to actively adapt the encoding bit-rate based on changing networkbandwidth availability provides the highest possible video quality and enables network traffic management.Evolving Requirements for Video Capture and DistributionEvolving requirements for cameras and broadcast infrastructure equipment typically center around video definition and frame rates, ability to capturehigh-quality still images and video, advanced video features, computer vision functionality, and transcoding capability: •Higher Definition and Higher Frame Rates. The demand for enhanced video resolution has been increasing in both the camera andinfrastructure markets. Consumers expect video quality to be closer to high-resolution still images, which continues to drive the transition fromstandard definition to Full HD and beyond. Similarly, as new display technologies enable higher resolutions and higher frame rates, we believeconsumer demand will continue to drive the requirement for UHD or 4K video capture and transmission. •Ability to Capture High-Quality Still Images and Video. Historically, consumers purchased devices that either provide high-quality imagecapture or record high-quality video. This was the result of consumer preference, as reasonably priced and sized devices would provide onlyone of those attributes. However, as a result of technological improvements, consumer devices that deliver both attributes have proliferated tothe point that a pure video capture device or still image capture device is becoming uncommon. Increasingly, devices are able tosimultaneously capture HD video and high-quality still images without adversely impacting the quality of either. We believe devices that cancapture Full HD video while encoding a second mobile resolution video for uploading to the Internet or streaming over a Wi-Fi network willexpand consumer demand for specialized video capture devices. Additionally, we believe advanced low-light processing including highdynamic range and high-ISO processing will continue to improve image quality even in challenging lighting conditions. We believe imagestabilization technology enables stable video recording during high-motion conditions, which are often encountered when using sportscameras and UAVs. •Connectivity. Integrated wireless capability using wireless links such as Bluetooth and Wi-Fi has become a prevalent feature across manyclasses of video capture devices. Consumers want to watch, control and capture real-time video using their smartphones as the remote controland viewer for wirelessly enabled wearable and sports cameras. Additionally, rather than storing images and video to local media andtransferring to a computer later, consumers are demanding the ability to wirelessly transfer and share their video content to websites such asYouTube, Facebook and other online media albums. In video security applications, connectivity to cloud services allows users to monitorsurveillance video in real-time on their smartphones or tablets. The storage of video in the cloud also provides protection against theft of thevideo content and enables users the capability to play back the stored video. •Ability to Deliver Feature-Rich Video. The addition of de-warping capability allows cameras to utilize a wide angle or “fish eye” lens to covera wide viewing area. In security applications this capability can allow a single camera to replace multiple cameras and may also eliminate theneed for mechanical pan-tilt-zoom in the cameras. In consumer virtual reality, or VR, cameras, the ability to capture, de-warp and stich imagesfrom two image sensors allows 360° video creation. In automotive markets, the ability to combine and display images captured by multiplecameras can allow the automotive camera recorder to capture and display images from the front, rear and sides of the car. Wide dynamic range,or WDR, and high dynamic range, or HDR, processing capabilities provide greater dynamic range between the lightest and darkest areas of animage, permitting captured still images to reveal details that would otherwise be lost against a bright background.7 •Computer Vision. Computer vision represents the field of methods for acquiring, processing, analyzing, and understanding images and high-dimensional data from the real world in order to automate and integrate a wide range of processes. Computer vision is becoming increasinglyimportant for the development of intelligent video cameras. In the IP security camera market, computer vision can be used for various functionsincluding motion detection to trigger alarms, the counting and tracking of people, and facial recognition. The application of computer visionmay also be used to help control the video encoding process to reduce video bitrates and maximize network efficiency. In the automotivemarket, the application of computer vision for advanced driver assistance systems, or ADAS, is increasingly being used to help drivers.Automotive analytics functions include lane detection warning and forward collision warning. In general, powerful CPUs and dedicatedcomputer vision hardware are required to support the advanced analytics algorithms in video cameras. •Transcoding. The ability to decode and simultaneously re-encode high-quality video streams in multiple formats, which is commonly referredto as transcoding, using dense, small form factor and power-efficient hardware is a critical requirement for content providers and the videocloud. Given the differing connection speeds and capacities in current communication networks, broadcasters must be able to deliver video toconsumers at varying bit-rate and quality levels. Furthermore, the significant increase in the number and types of devices capable of displayingvideo, from HD televisions to smartphones, requires broadcasters and other distributors to have the capability to provide video content inmultiple formats and source resolutions. As consumers increasingly view video on smartphones and tablets, in addition to traditionaltelevisions and PCs, the ability to trans-rate video content in real time to the various resolutions and bit-rates supported by smartphones ortablets is essential.Our Competitive StrengthsOur platform technology solutions provide performance attributes that satisfy the stringent demands of the camera market, enable integration of HDvideo and image capture capabilities in portable devices, provide computer vision capabilities that address the evolving needs of the automotive and othermarkets, and meet the highest standards of the infrastructure market. We believe that our leadership in HD video and image processing applications is theresult of our competitive strengths, including: •High-Performance, Low Power Video and Image Algorithm Expertise. Our solutions provide Full HD and UHD video at exceptionalresolution and frame rates. Our extensive algorithm expertise, which facilitates efficient video and image compression, enables our solutions toachieve low power consumption without compromising performance. Our solutions achieve high storage and transmission efficiencies throughinnovative and complex video and image compression algorithms that significantly reduce the output bit-rate. This smaller storage footprintdirectly benefits the performance of our solutions in several ways including lower memory storage requirements and reduced bandwidth needsfor transmission, which is more conducive to sharing content between devices. These benefits are particularly important in transcoding andvideo cloud applications. Our solutions can enable high-performance image capture of up to 30 32-megapixel still images per second. Oursolutions can deliver clear images in low light conditions because of our 3D motion compensated temporal filtering, or MCTF, and multipleexposure processing. Additionally, our WDR and HDR processing capabilities provide greater dynamic range between the lightest and darkestareas of an image, permitting captured still images to reveal details that would otherwise be lost against a bright background. Our advanced de-warping capability enables cameras to use wide angle lenses to capture images from a wide area, making it ideal for a variety of IP securitycamera applications, as well as 3D electronic image stabilization and surround view for automotive applications. •Proprietary Video Processing Architecture. Our proprietary video processing architecture is designed to efficiently integrate our advancedcompression algorithms into our SoCs to offer exceptional storage and transmission efficiencies at lower power across multiple products andend markets. We engineered our very-large-scale integration, or VLSI, architecture with a focus on high-performance video compression asopposed to solutions that are based on a still image processing architecture with add-on video capabilities. Due to our primary focus on videoprocessing compression, we believe that our solutions offer exceptional performance metrics with lower power requirements and reduced diesizes. Our integrated algorithms and architecture also enable simultaneous processing of multiple video and image streams. •Proprietary Computer Vision Architecture. Our proprietary computer vision processing architecture, known as CVflow, uses a flexiblecomputer vision hardware engine programmed with a high level algorithm description to achieve increased performance while minimizing diesize and power consumption. The CVflow architecture specifies data flow connections between a set of optimized computer vision operators,such as the convolution and matrix multiply functions that are specifically optimized for deep learning algorithms. The CVflow architecturesupports a variety of computer vision algorithms, including stereo obstacle detection and terrain mapping technology, and allows customers todifferentiate their products by porting their own algorithms and neural networks to our CVflow-based chips.8 •Highly Integrated SoC Solutions Based on a Scalable Platform. Our product families leverage our core high-performance video processingarchitecture combined with an extensive set of integrated peripherals, which enables our platform to address the requirements of a variety ofapplications and end markets. Traditional solutions have generally relied upon significant customization to meet the specific requirements ofeach market, resulting in longer design cycles and higher development costs. Our flexible and highly-scalable platform enables us to addressmultiple markets with reduced design cycles and costs. Our platform also enables us to develop fully integrated SoC solutions that provide thesystem functionalities required by our customers on a single chip. Our extensive system integration expertise enables us to integrate core videoprocessing functionality with many peripheral functions such as multiple inputs and outputs, lens controllers, flash controllers and remotecontrol interfaces to reduce system complexity and interoperability issues. Furthermore, we have successfully migrated our process nodes from130nm to 10nm since our founding and have a proven track record of developing and delivering multiple solutions with first-pass siliconsuccess. •Comprehensive and Flexible Software. Our years of investment in developing and optimizing our comprehensive and flexible software serveas the foundation of our high-performance video application solutions. Key components of our software include highly customized middlewarethat integrates many unique features for efficient scheduling and other system-level functions, and firmware that is optimized to reduce powerrequirements and improve performance. In addition, we provide to our customers fully-functional software development kits with a suite ofapplication programming interfaces or APIs, which allow them to rapidly integrate our solution, adjust product specifications and provideadditional functionality to their systems, thereby enabling them to differentiate their product offerings and reduce time to market. •Broad Domain Experience in Video Processing and Delivery. Our engineering team, whose core members have worked together for over 20years, includes leading innovators in video processing and delivery. Our VLSI team has extensive multi-gigahertz, superscalar CPU designexperience from Intel Corporation, Advanced Micro Devices, Inc. and Sun Microsystems, Inc. Our team has developed many industry firstssuch as the first single chip MPEG-2 encoder, the first consumer MPEG-2 transcoding SoC, the first single chip HD H.264 encoder and cameraSoC and the first 1080p60 and UHD infrastructure SoC. Our team has developed an ecosystem of high-performance software and hardwaresolutions that reduce customer system development time and cost, thus allowing for accelerated time-to-market. •Key Global Relationships with Leading OEM and ODM Customers. Our solutions have been designed into top-tier OEM brands currently inthe market. We have established collaborative relationships with most of the leading ODMs and OEMs that serve our primary markets. Weintend to leverage these relationships to identify new opportunities and applications for our solutions, and we intend to continue to activelyengage with ODMs and OEMs at every stage of their design cycles. We actively engage with OEMs on design specifications and with ODMson product implementation. Additionally, approximately 72% of our employees are located in Asia, primarily in Taiwan and China,strategically placing us near many of our customers and allowing us to provide superior sales, design and technical support and to strengthenour customer relationships. 9 ProductsOur technology platform delivers a high-performance, low power video and image processing solution that can be tailored with our software solutionto meet the specific needs of multiple end markets. Our HD video and image processing SoCs, based on our proprietary technology platform, are highlyconfigurable and enable our customers to deliver exceptional quality video and still imagery in small, easy-to-use devices with low power requirements. Ourcustomized software solutions include firmware, middleware and software development kits to optimize system-level functions and allow rapid integration ofour solution into customer products and tailor specifications to customer requirements. We also provide customers in all of our core markets with guidelinesknown as reference designs so that they can efficiently incorporate our solutions in their product designs.In addition to enabling small device size and low power consumption, our SoC solutions make possible differentiated functionalities such assimultaneous video and image capture, multiple-stream video capture, image stabilization and wireless connectivity. We intend to leverage our coretechnology platform to address other video processing markets that have high-performance, robust connectivity, low latency and low power requirements. Inaddition, we are developing computer vision functionality for the consumer and professional IP security, UAV and automotive markets to enhance thecapabilities of our SoCs. We believe that including computer vision functionality on the SoC, such as face recognition, object identification and avoidanceand motion detection will expand the addressable market for our SoC solutions.We currently sell our solutions into the following end markets: •Professional IP Security Cameras. These cameras are used for video monitoring and security surveillance in professional applications. Oursolutions enable the streaming of multiple video streams to enable remote monitoring at multiple locations. Embedded intelligence supportsadvanced analytics including motion detection and people tracking. The cameras often have the ability to operate in low light conditions andover wide temperature ranges in order to be used in outdoor environments. •Consumer IP Security Cameras. Consumer IP security cameras are designed for home or small business use and are typically connected tocloud services and applications via home networks using WiFi. These cameras may require very low bitrate operation to support HD resolutionover limited bandwidth broadband connections, while small form factors may require very low power operation. The implementation ofintelligent motion detection may reduce the number of false alarms. •Automotive Cameras. We sell solutions into several automotive markets both for aftermarket and OEM applications. In the automotiveaftermarket, we sell solutions for small video cameras mounted on board vehicles to record traffic accidents and help establish records forinsurance and liability purposes. Our MotorVu™ 3D 360° Surround View reference design for the automotive OEM market brings high qualityHD video to multi-camera parking assistance applications and features a dedicated video engine to combine multiple HD video streams for 3Dscene rendering. Also, for the OEM market, electronic mirrors utilize cameras and LCD displays to augment optical rear view and side viewmirrors to provide a wider, unobstructed field of view. We believe our low power, high-performance, small form factor solutions are well suitedfor this market. •Wearable Cameras including Sports, Commercial and Social Media. Durable cameras that provide HD video quality increasingly includeembedded connectivity to share and display video. Our low power, high-resolution and connected solutions can be found in a variety ofcameras in this end market. •UAVs or Drones. These cameras are used for capturing aerial video or photographs. Our high-performance, high frame rate and low powerarchitecture enables improved functionality with Full HD video capture. In addition, our ability to provide high-resolution still image captureand HD video capture simultaneously enables hybrid capability for the user. •Virtual Reality Cameras. This new class of cameras is used typically for capturing 360° video or, in higher-end camera models, for capturing360° plus 3D video. Standalone 360° video cameras capture video images from two sensors and encode both video streams in high resolutionwhile simultaneously stitching the two images together in real time. •Broadcast and Traffic Management. Broadcasting equipment that enables HD video to be distributed through satellite, cable and IPinfrastructures comprises this market. Our SoC solutions enable high-performance, low power consumption broadcast devices with small formfactors, thereby reducing bandwidth needs, energy usage and costs of additional hardware. Our solutions enable an increased number ofchannels per encoder due to high compression efficiencies. They also make possible a new class of transcoders that can simultaneously encodeand stream multiple video formats to different end devices and can change video resolution and transmission rates based on availablebandwidth and the display capability of receiving devices.10 The chart below describes our current product lines and target markets:TechnologyOur semiconductor processing solutions enable computer vision processing, HD and UHD (up to 3840x2160p60) video and image processing, videocompression, sharing and display while offering exceptional power, size and performance characteristics.Key differentiators of our technology include: •algorithms to compress video signals with high compression and power efficiency at multiple operating points; •algorithms for high-speed image processing with high image quality and power efficiency; •scalable architecture that covers the gamut of consumer and professional HD video camera and encoding applications from Full HD to UHDperformance levels; •ability to encode multiple video streams simultaneously to support simultaneous recording and video streaming, or streaming to multipledevices with different resolutions; •ability to capture, process and encode multiple image sensors simultaneously to support multiple viewpoints, including surround view andvirtual reality applications; •algorithms to stabilize video from camera motion in challenging conditions, such as sports and UAV cameras; •low-power architecture with minimal system memory footprint; •programmable architecture that balances flexibility, quality, power and die size; •full software development kit comprised of APIs to facilitate integration into customers’ products; •powerful CPUs and dedicated hardware to support advanced analytics functions; •support for transcoding between video formats, for example MPEG-2 to H.264 and H.265;11 •flexible CVflow computer vision processing engines to support UHD performance levels for deep learning and stereo-based algorithms withpower and die size efficiency; •optimized deep learning algorithms for multi class object detection, including vehicles, pedestrians, cycles, traffic signs and traffic lights; •stereo obstacle detection for obstacles that are not in the training data to provide robust safety; and •full autonomous algorithm stack for automotive and drone applications, including fusion for multiple cameras and sensor modalities, mappingand localization algorithms and planning.Our technology platform, comprised of our video, image and computer vision processors, is based on a high-performance, low-power architecturesupported by a high level of system integration. The building blocks of our platform are illustrated below:Our technology platform enables the capture of high-resolution still images and HD video while simultaneously encoding HD video for high-qualitystorage and lower resolution video for Internet sharing and wireless networking. Multi stream video capture enhances the consumer experience by offeringthe ability to instantaneously share captured video without having to go through a transcoding process. Our computer stereo vision processing solutionsprovide the ability to detect generic objects without training, allowing more robust decisions to be made in applications such as autonomous driving.AmbaClearOur proprietary image signal processing architecture, known as AmbaClear, incorporates advanced algorithms to convert raw sensor data to high-resolution still and HD video images concurrently. Image processing algorithms include sensor, lens and color correction, demosaicing, which is a processused to reconstruct a full color image from incomplete color samples, noise filtering, detail enhancement and image format conversion. For example, rawsensor data can be captured at up to 16-megapixel resolution at 60 frames per second and filtered down to two megapixels for HD video processing whileselected 16-megapixel frames are concurrently processed by the still image processor. This image processing reduces noise in the input video and improvesvideo quality resulting in better storage and transmission efficiencies. Our WDR and HDR processing capabilities handle greater dynamic range between thelightest and darkest areas of an image, permitting video images to reveal details that would otherwise be lost against a bright background. Our advanced de-warping capability enables cameras to use wide angle lenses to capture images from a wide area, making it ideal for a variety of IP security camera andsurround view applications.12 AmbaCastOur proprietary HD video processing architecture, known as AmbaCast, incorporates advanced algorithms for motion estimation, motion-compensated3D temporal filtering, mode decision and rate control. Successful implementation of these computationally intensive steps has helped us maximizecompression efficiency. We support all three compression profiles—baseline, main and high—as specified in the H.264 video compression standard. We alsosupport the main profile H.265 video compression standard with up to 2x better compression efficiency compared to our H.264 video compressiontechnology.Our solutions for the broadcast infrastructure market allow OEMs to offer H.265, H.264 and MPEG-2 encoding formats. All of our video encodingsolutions have decoding capabilities as well.CVflowOur proprietary computer vision processing architecture, known as CVflow, uses a flexible computer vision hardware engine programmed with a highlevel algorithm description to achieve increased performance while minimizing die size and power consumption. This description allows the hardware tomaximize use of its resources by exploiting all available parallelism without software intervention. The CVflow architecture specifies data flow connectionsbetween a set of optimized computer vision operators, such as the convolution and matrix multiply functions that are specifically optimized for deep learningalgorithms. The CVflow architecture supports a variety of computer vision algorithms, including stereo obstacle detection and terrain mappingtechnology. Our platform allows customers to differentiate their products by porting their own algorithms and neural networks to our CVflow-based chipsusing industry-standard training tools and frameworks.Computer Vision TechnologyComputer vision is a core technology that complements our image processing and video compression technology. Our current SoC solutions have upto four high performance ARM processors with NEONTM acceleration that provide a flexible and cost-effective manner in which to run computer visionalgorithms. We are focusing on developing advanced computer vision algorithms and high-performance, low-power hardware acceleration. We believe thatenhanced computer vision performance will be critical both to our current video markets, including IP security, wearable, and UAV cameras, as well as futuremarkets such as automotive cameras for OEM applications. A significant feature of our computer vision SoCs is support for stereo obstacle detection, which utilizes stereo cameras to perceive depth. We believethat stereo depth information provides an important augmentation to monocular computer vision processing, resulting in an extra margin of safety forautonomous driving and other applications. Monocular processing depends on training to detect obstacles, and may not detect obstacles that are notrepresented in the training set. Stereo cameras detect obstacles without relying on training because the depth information is used to directly construct a three-dimensional model of the camera’s surroundings, including any obstacles.Design MethodologyThe success of our technology platform stems from our algorithm-driven design methodology. We test and verify our algorithms on our proprietaryarchitectural model prior to implementing our algorithms in hardware. Our advanced verification methodology validates our approach through simultaneousmodeling of architecture, algorithms and the hardware itself. This redundant approach enables us to identify and remediate any weaknesses early in thedevelopment cycle, providing a solid foundation on which we build our hardware implementation, and enhances our ability to achieve first-pass siliconsuccess. We have a history of using several process nodes from 130nm through 10nm. In fiscal year 2015, we began investing in development of our nextgeneration SoCs in the 14nm process node and announced our first 14 nm SoC in January 2016 and our second 14 nm SoC in January 2017. In fiscal year2017, we began investing in development of our next generation SoCs in the 10nm process node, and we announced our first 10nm SoC in January 2018. Wepossess extensive expertise in video and imaging algorithms as well as deep sub-micron digital and mixed-signal design experience.13 SoC SolutionOur SoC designs integrate HD and UHD video processing, image processing, applications processing and system functions onto a single chip,delivering exceptional video and image quality with differentiated features, including advanced wireless connectivity. Our multi-core DSP architecture ishighly scalable and balances software programmability with hardware-accelerated performance to achieve extremely low power consumption and maximizecamera battery life. The programmable architecture provides our customers with the flexibility they need to quickly develop a wide range of differentiatedproducts. Additionally, our SoCs integrate mixed signal (analog/digital) functionality and high speed interfaces required for interfacing to advanced high-speed CMOS sensors and industry standard interfaces such as USB 3.0 and HDMI 2.0. Our newest SoCs also feature our fully-programmable and highly-efficient CVflow architecture to provide significant computer vision performance with very low power consumption. Recently introduced SoCs include thefollowing: •Our CV1 SoC, which we announced in January 2018, is the first in a family of UHD computer vision processors based on our new CVflowarchitecture. The CV1 SoC supports computer vision processing for one stereo pair of 4K UHD sensors, or four stereo pairs of 1080p sensorsrunning at 30 frames per second. This enables the CV1 SoC to detect obstacles at a range of 150 meters using the single 4K stereo pair forautomotive applications, or at shorter distances in a 360 degree surround view format with the four 1080p stereo pairs. The CV1 SoCfeatures an advanced image signal processor capable of HDR processing to deliver high quality images even in low light and high-contrastenvironments. •Our 10nm CV22 SoC, which we also announced in January 2018, is the second chip in our CVflow family and provides computer visionprocessing required for the next generation of intelligent home monitoring, automotive, drone, and wearable cameras. The CV22 SoC alsoencodes AVC and HEVC video at rates of up to 4Kp60, with multi-stream support. The CV22 SoC includes a quad-core 1.2 GHz ARM®Cortex® A53 CPU with NEONTM DSP extensions and floating point unit to provide power for features such as 360 degree de-warping andlens distortion correction, multi-exposure HDR and WDR processing, LED flicker mitigation, and multi-sensor support for multi-imagercameras. •Our S5L SoC, announced in April 2017, is designed for professional IP cameras and includes 4K HDR processing and multi-streaming. TheS5L SoC delivers 4Kp30 video at under 1.5 watts and bitrates as low as 512 Kbits per second. The S5L SoC features a quad-core ARMCortex A53 CPU for advanced analytics, including object and person detection to reduce false alarms and maximize battery life in battery-powered designs. The S5L SoC’s on-chip lens distortion correction engine supports wide angle lenses up to 180 degrees, while the dualindependent video inputs facilitate seamless dual-lens designs. •Our 10nm CV2 SoC, which we announced in March 2018, is the third chip in our CVflow family and provides computer vision andstereovision processing required for the next generation of intelligent automotive, security, and drone cameras. The CV2 SoC encodesAVC and HEVC video at rates of up to 4Kp90, with multi-stream support. The CV2 SoC includes a quad-core 1.2 GHz ARM® Cortex®A53 CPU with NEONTM DSP extensions and floating point unit to provide power for features such as 360-degree de-warping and lensdistortion correction, multi-exposure HDR and WDR processing, LED flicker mitigation, and multi-sensor support for multi-imagercameras. CV2’s CVflow computer vision processing provides up to 20 times the CNN processing performance of CV1.Software Development KitsWe provide to our customers fully-functional software development kits with a suite of application programming interfaces or APIs, which allowcustomers to rapidly integrate our solution, adjust product specifications and provide additional functionality to their systems, thereby enabling them todifferentiate their product offerings and reduce time to market. We have software development kits for all of our core markets. For example, our videostreaming technology enables the camera’s image to be previewed on a smartphone, so the camera can be optimally set up and controlled remotely, or videocan be streamed directly to Internet cloud services. To enable this functionality, end customers deploy our Wireless Camera Developer’s Kit, or the Kit, whichenables the design of cameras that combine still photography and Full or Ultra HD video with wireless video streaming. The Kit leverages our multi-streamencoding capability which supports the recording of Full or Ultra HD video locally while simultaneously recording and streaming a second stream. The Kitenables accelerated end customer product development.14 For the security market, we provide a fully-featured IP Camera Software Development Kit, or the IP Camera SDK, based on a LinuxTM operatingsystem. The IP Camera SDK includes middleware software with multi-streaming capability, control for our 4K H.264/H.265 encoder hardware, support forperipherals such as sensors and Wi-Fi chipsets, and other functions needed to build a 4K Ultra HD multi-streaming IP camera. The IP Camera SDK leveragesour SoCs’ capabilities for 4K video, multi-streaming, HDR, video de-warping, video analytics, and multi-sensor connectivity. For example, the IP CameraSDK enables an IP camera to record a stream locally at 4K resolution while streaming another video to a remote client over an Ethernet connection at reducedresolution. We also provide extensions to the IP Camera SDK to address specific submarket segments such as doorbells and battery-powered cameras, whichcan take advantage of the fast-boot, low power, and advanced multi-view video modes of our chips.We also provide a toolkit to accelerate the development of computer vision algorithms onto our hardware. We provide tools to map algorithms fromcommonly used computer vision frameworks such as Caffe or Tensorflow into our proprietary CVflow architecture. We also provide a framework fordevelopment of higher-level computer vision tasks. This enables our customers to write complex computer vision algorithms with multiple tasks running inparallel, as would be required in applications such as autonomous driving.CustomersWe sell our solutions to leading ODMs and OEMs globally. We refer to ODMs as our customers and OEMs as our end customers, except as otherwiseindicated or as the context otherwise requires. In the camera market, our video processing solutions are designed into products from leading OEMs including360 Smart, Axis Communications AB, Avigilon Corporation, Carcam Electronics Technology Co., Ltd., Dahua Technology Co., Ltd., Dajiang InnovationTechnology Inc., Denso Ten Limited, Garmin Ltd., GoPro Inc., or GoPro, Hikvision Digital Technology Co., JVC Kenwood Corporation and affiliatedentities, Nest Labs (owned by Google), Ring, Inc., Robert Bosch GmbH and affiliated entities, Thinkware Corporation, and XiaoYi Technology Co., Ltd., whosource our solutions from ODMs including Altek Corporation, Chicony Electronics Co., Ltd., Dynacolor, Inc., Flex Ltd., and affiliated entities, affiliatedentities of Hon Hai Precision Industry Co., Ltd., Jabil Circuit, Inc., San Jet Technology Corp., Sercomm Corporation, and Sky Light Digital Ltd. In theinfrastructure market, our solutions are designed into products from leading OEMs including Harmonic Inc., Motorola Mobility, Inc. (owned by Arris Group,Inc.) and Telefonaktiebolaget LM Ericsson, who source our solutions from leading ODMs such as Plexus Corp.Sales to customers in Asia accounted for approximately 79%, 73% and 91% of our total revenue in the fiscal years ended January 31, 2018, 2017 and2016, respectively. Certain prior year revenue amounts have been reclassified by geographic region to conform to the fiscal year 2018 presentation. Thesereclassifications did not impact total revenues in each fiscal year. As many of our OEM end customers or their ODM manufacturers are located in Asia, weanticipate that a majority of our revenue will continue to come from sales to customers in that region. Although a large percentage of our sales are made tocustomers in Asia, we believe that a significant number of the products designed by these customers and incorporating our SoCs are then sold to consumersglobally. In fiscal years 2018, 2017 and 2016, 98%, 98% and 97% of our revenue was attributable to sales of our solutions into the camera markets,respectively, and 2%, 2% and 3% of our revenue was attributable to sales of our solutions into the infrastructure market, respectively. To date, all of our saleshave been denominated in U.S. dollars.We work closely with our end customer OEMs and ODMs throughout their product design cycles that often last six to nine months for the cameramarket, though new products within the camera market may have longer design cycles, and 12 to 18 months for the infrastructure market. As a result, we areable to develop long-term relationships with our customers as our technology becomes embedded in their products. Consequently, we believe we are wellpositioned to not only be designed into our customers’ current products, but also to continually develop next-generation HD video and image processingsolutions for their future products.The product life cycles in the camera market typically range from six to 18 months. The product life cycles in the infrastructure market typically rangefrom two to five years, where new product introductions occur less frequently. For many of our solutions, early engagement with our customers’ technicalstaff is necessary for success. To ensure an adequate level of early engagement, our application and development engineers work closely with our customersto adjust product specifications and add functionality into their products.15 In fiscal year 2018, the customers representing 10% or more of revenue were Wintech, the Company’s distributor, and GoPro, Inc., or GoPro, a directOEM customer, which accounted for approximately 59% and 12% of total revenue, respectively. The revenues for GoPro in fiscal year 2018 included directshipments to GoPro but did not include shipments to GoPro’s ODMs through Wintech, which represented an additional approximately 1% of our totalrevenue in fiscal 2018. We currently rely, and expect to continue to rely, on a limited number of customers for a significant portion of our revenue. In fiscalyears 2018, 2017 and 2016, sales directly and through our distributors to our five largest ODM and OEM customers collectively accounted for approximately51%, 56% and 56% of our total revenues, respectively, and sales to our 10 largest ODM and OEM customers collectively accounted for approximately 65%,68% and 69% of our total revenues, respectively.Sales and MarketingWe sell our solutions worldwide using our direct sales force and our distributors. We have direct sales personnel covering the United States, Asia andEurope, and we operate sales offices in Santa Clara, California and Hong Kong, and business development offices in China, Japan, South Korea, and Taiwan.In addition, in each of these locations we employ a staff of field applications engineers to provide direct engineering support locally to our customers.Our sales cycles typically require a significant investment of time and a substantial expenditure of resources before we can realize revenue from thesale of our solutions, if any. Our typical sales cycle consists of a multi-month sales and development process involving our customers’ system designers andmanagement and our sales personnel and software engineers. If successful, this process culminates in a customer’s decision to use our solutions in its system,which we refer to as a design win. Our sales efforts are typically directed to the OEM of the product that will incorporate our video and image processingsolution, but the eventual design and incorporation of our SoC into the product may be handled by an ODM on behalf of the OEM. Volume production maybegin within six to 18 months after a design win, depending on the complexity of our customer’s product and other factors upon which we may have little orno influence. Once our solutions have been incorporated into a customer’s design, they are likely to be used for the life cycle of the customer’s product.Conversely, a design loss to a competitor will likely preclude any opportunity for future revenue from such customer’s product.The end markets into which we sell our products have seen significant changes as consumer preferences have evolved in response to newtechnologies. As a result, the composition of our revenue may differ meaningfully during periods of technology or consumer preference changes. Forexample, in fiscal year 2011, pocket video revenue represented approximately 40% of our total revenue. The proliferation of smartphones and their ability tocapture high-quality video and still images significantly impacted this market, decreasing pocket video cameras’ contribution to approximately zero percentof total revenue by fiscal year 2013. Conversely, our total revenue in the 2013-2018 fiscal years was primarily derived from markets for specialized video andimage capture devices, such as the wearable camera market, the IP security camera market, the automotive aftermarket and the UAV camera market. We expectshifts in consumer use of video capture to continue to change over time, as more specialized use cases emerge and video capture continues to proliferate,which could significantly impact any of these markets.Our sales are generally made pursuant to purchase orders received approximately four to 18 weeks prior to the scheduled product delivery date,depending upon agreed terms with our customers and the current manufacturing lead time at the time the purchase order is received. These purchase ordersmay be cancelled without charge upon notification within an agreed period of time in advance of the delivery date, which may be as short as 30 days. Due tothe scheduling requirements of our foundry, assembly and test contractors, we generally provide our contractors with our production forecasts and place firmorders for products with our suppliers up to 20 weeks prior to the anticipated delivery date, usually without a purchase order from our own customers. Ourstandard warranty provides that our SoCs containing defects in materials, workmanship or performance may be returned for a refund of the purchase price orfor replacement, at our discretion.ManufacturingWe employ a fabless business model and use third-party foundries and assembly and test contractors to manufacture, assemble and test our solutions.This outsourced manufacturing approach allows us to focus our resources on the design, sales and marketing of our solutions and avoid the cost associatedwith owning and operating our own manufacturing facility. Our engineers work closely with foundries and other contractors to increase yields, lowermanufacturing costs and improve quality. In addition, we believe outsourcing many of our manufacturing and assembly activities provides us the flexibilityneeded to respond to new market opportunities, simplifies our operations and significantly reduces our capital requirements. We do not have a guaranteedlevel of production capacity from any of our suppliers’ facilities to produce our solutions. We carefully qualify each of our suppliers and their subcontractorsand processes in order to meet the extremely high-quality and reliability standards required of our solutions.16 BacklogOur sales are primarily made through standard purchase orders for delivery of products. Our manufacturing production is based on estimates andadvance non-binding commitments from customers as to future purchases. We follow industry practice that allows customers to cancel, change or defer orderswith limited advance notice prior to shipment. Given this practice, we do not believe that backlog is a reliable indicator of future revenue levels.Wafer FabricationWe have a history of using several process nodes from 130nm through 10nm. We currently manufacture the majority of our solutions in 28nm siliconwafer production process geometry utilizing the services of several different foundries. In fiscal year 2015, we began investing in development in the 14nmprocess node, and we announced our first 14nm SoC in January 2016 and our second 14nm SoC in January 2017. In fiscal year 2017, we began investing indevelopment in the 10nm process node, and we announced our first 10nm SoC in January 2018. Currently, the majority of our SoCs are supplied by SamsungElectronics Co., Ltd., or Samsung, in facilities located in Austin, Texas and South Korea, from whom we have the option to purchase both fully-assembledand tested products as well as tested die in wafer form for assembly. We also have products supplied by Global UniChip Corporation, or GUC, in Taiwan,from whom we purchase fully-assembled and tested products. The wafers used by GUC in the assembly of our products are manufactured by TaiwanSemiconductor Manufacturing Co., Ltd., or TSMC, in Taiwan.Assembly and TestingSamsung subcontracts the assembly and initial testing of the assembled chips it supplies to us to Signetics Corporation and STATS ChipPAC Ltd. Inthe case of purchases of tested die from Samsung, we contract the assembly to Advanced Semiconductor Engineering, Inc., or ASE. GUC subcontracts theassembly of the products it supplies to us to ASE and Powertech Technology Inc. Final testing of all of our products is handled by King Yuan ElectronicsCo., Ltd. or Sigurd Corporation under the supervision of our engineers. All test software and related processes for our products are developed by ourengineers. We continually monitor the results of testing at all of our test contractors to ensure that our testing procedures are properly implemented.As part of our total quality assurance program, our quality management system has been certified to ISO 9001:2000 standards. Our foundry vendorsare also ISO 9001 certified.Research and DevelopmentWe believe our technology is a competitive advantage and we engage in substantial research and development efforts to develop new products andintegrate additional features and capabilities into our HD and UHD video processing solutions, such as computer vision capabilities. We believe that ourcontinued success depends on our ability to both introduce improved versions of our existing solutions and to develop new solutions for the markets that weserve. As of January 31, 2018, 81% of our employees are engaged in research and development. Our research and development team is comprised of bothsemiconductor and software designers. Our semiconductor design team has extensive experience in large-scale semiconductor design, including architecturedescription, logic and circuit design, implementation and verification. Our software design team has extensive experience in development and verification ofsoftware for the HD video market. Because the integration of hardware and software is a key competitive advantage of our solutions, our hardware andsoftware design teams work closely together throughout the product development process. The experience of our hardware and software design teams enablesus to effectively assess the tradeoffs and advantages when determining which features and capabilities of our solutions should be implemented in hardwareand in software.We have assembled a core team of experienced engineers and systems designers in four research and development design centers located in the UnitedStates, China, Italy and Taiwan.For the fiscal years ended January 31, 2018, 2017 and 2016, our research and development expense was $115.5 million, $101.2 million and $82.9million, respectively.CompetitionThe global semiconductor market in general, and the video and image processing markets in particular, are highly competitive. We expectcompetition to increase and intensify as more and larger semiconductor companies enter our markets and as we enter new markets. Increased competitioncould result in price pressure, reduced profitability and loss of market share, any of which could materially and adversely affect our business, revenue andoperating results.17 Our competitors range from large, international companies offering a wide range of semiconductor products to smaller companies specializing innarrow markets. In the wearable sports camera market, our primary competitors are vertically integrated divisions of camera device OEMs, including SonyCorporation, or Sony, and Panasonic Corporation, as well as HiSilicon Technologies Co., Ltd., or HiSilicon, and Socionext Inc., or Socionext, an entitycreated from the merger of the system LSI businesses of Fujitsu Ltd. and Panasonic Corporation. In the IP security camera market, our primary competitorsinclude Fullhan Microelectronics Co., Ltd., Geo Semiconductor, Inc., Grain Media, Inc., which was recently acquired by Novatek Microelectronics Corp., orNovatek, HiSilicon, Intel Corporation, or Intel, Movidius Ltd., which was recently acquired by Intel, OmniVision Technologies, Inc., or OmniVision,Qualcomm Incorporated, or Qualcomm, Realtek Semiconductor Corp., Socionext, and Texas Instruments Incorporated, or Texas Instruments, as well asvertically integrated divisions of IP Security camera device OEMs, including Axis Communications AB and Sony. In the automotive camera market, wecompete against Allwinner Technology Co., Ltd., Alpha Imaging Technology Corp., Core Logic, Inc., Novatek, NXP Semiconductors N.V., OmniVision,Qualcomm, Renesas Electronics Corporation, Sunplus Technology Co. Ltd., and Texas Instruments. Our primary competitors in the UAV camera marketinclude HiSilicon, Intel, NVIDIA Corporation and Qualcomm. Our primary competitors in the infrastructure market include GigPeak, Inc., Intel, and TexasInstruments. Certain of our customers and suppliers also have divisions that produce products competitive with ours.Our ability to compete successfully depends on elements both within and outside of our control, including industry and general economic trends.Many of our competitors are substantially larger, have greater financial, technical, marketing, distribution, customer support and other resources, are moreestablished than we are, and have significantly better brand recognition and broader product offerings which may enable them to develop and enable newtechnology into product solutions better or faster than us and to better withstand adverse economic or market conditions in the future.Our ability to compete successfully in the rapidly evolving HD video market depends on several factors, including: •the design and manufacturing of new solutions, including software, that anticipate the video processing and integration needs of ourcustomers’ next-generation products and applications; •performance of our solutions, as measured by video and still picture image quality, resolution and frame processing rates; •power consumption of our solutions; •the ease of implementation of our products by customers; •the strength of customer relationships; •the selection of the foundry process technology and architecture tradeoffs to meet customers’ product requirements in a timely manner; •reputation and reliability; •customer support; and •the cost of the total solution.We believe we compete favorably with respect to these factors, particularly because our solutions typically provide high-performance and low powerconsumption video, efficient integration of our advanced algorithms, exceptional storage and transmission efficiencies at lower power, highly-integrated SoCsolutions based on a scalable platform, and comprehensive and flexible software. We cannot ensure, however, that our solutions will continue to competefavorably or that we will be successful in the face of increasing competition from new products introduced by existing or new competitors.Intellectual PropertyWe rely on a combination of intellectual property rights, including patents, trade secrets, copyrights and trademarks, and contractual protections, toprotect our core technology and intellectual property. As of January 31, 2018, we had 107 issued patents in the United States, 42 of which were continuationpatents, six patents issued in Europe, five issued patents in China, six issued patents in Japan and 78 pending and provisional patent applications in theUnited States. The issued and allowed patents in the United States expire beginning in 2024 through 2035. Many of our issued patents and pending patentapplications relate to image and video processing and HD video compression.18 We may not receive competitive advantages from any rights granted under our patents, and our patent applications may not result in the issuance ofany new patents. In addition, any patent we hold may be opposed, contested, circumvented, designed around by a third party or found to be unenforceable orinvalidated. Others may develop technologies that are similar or superior to our proprietary technologies, duplicate our proprietary technologies or designaround patents owned or licensed by us.In addition to our own intellectual property, we also use third-party licenses for certain technologies embedded in our SoC solutions. These aretypically non-exclusive contracts provided under royalty-accruing or paid-up licenses. These licenses are generally perpetual or automatically renewed for solong as we continue to pay any maintenance fees that may be due. To date, maintenance fees have not constituted a significant portion of our capitalexpenditures. While we do not believe our business is dependent to any significant degree on any individual third-party license, we expect to continue to useand may license additional third-party technology for our solutions.We generally control access to and use of our confidential information through employing internal and external controls, including contractualprotections with employees, contractors and customers. We rely in part on U.S. and international copyright laws to protect our mask work. All employees andconsultants are required to execute confidentiality agreements in connection with their employment and consulting relationships with us. We also requirethem to agree to disclose and assign to us all inventions conceived or made in connection with the employment or consulting relationship.Despite our efforts to protect our intellectual property, unauthorized parties may still copy or otherwise obtain and use our software, technology orother information that we regard as proprietary intellectual property. In addition, we intend to expand our international operations, and effective patent,copyright, trademark and trade secret protection may not be available or may be limited in foreign countries.The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted inprotracted and expensive litigation for many companies. Our customers have in the past received, and we expect that in the future we may receive,communications from various industry participants alleging infringement of their patents, trade secrets or other intellectual property rights by our solutions.In addition, certain of our end customers have been the subject of lawsuits alleging infringement of patents by products incorporating our solutions. Anylawsuits could subject us to significant liability for damages, invalidate our proprietary rights and harm our business and our ability to compete. Anylitigation, regardless of success or merit, could cause us to incur substantial expenses, reduce our sales and divert the efforts of our technical and managementpersonnel. In the event we receive an adverse result in any litigation, we could be required to pay substantial damages, seek licenses from third parties, whichmay not be available on reasonable terms or at all, cease sale of products, expend significant resources to develop alternative technology or discontinue theuse of processes requiring the relevant technology.SeasonalityOur business tends to be seasonal with higher revenue in our third fiscal quarter as our customers typically increase their production to meet holidayshopping season or year-end demand for their products. We also may experience seasonally lower demand in our first fiscal quarter in the Asia-based portionof the IP security camera market as a result of industry seasonality and the impact of ODM and OEM factory closures associated with the Chinese New Yearholiday.EmployeesAt January 31, 2018, we employed a total of 706 people, including 154 in the United States, 505 in Asia, primarily in China and Taiwan and 47 inEurope. We also engage temporary employees and consultants. None of our employees are either represented by a labor union or subject to a collectivebargaining agreement. We have not experienced any work stoppages, and we consider our relations with our employees to be good.Information concerning revenue, results of operations, assets and revenue by geographic area is set forth in Item 6, “Selected Financial Data” and Note15, “Segment Reporting,” of Notes to Consolidated Financial Statements of this Annual Report on Form 10-K and is incorporated herein by reference.Information concerning risks attendant to our foreign operations is set forth below in Item 1A, “Risk Factors.” 19 ITEM 1A. Risk FactorsCertain factors may have a material adverse effect on our business, financial condition and results of operations. You should consider carefully therisks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidatedfinancial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that weare unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the followingrisks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event,the trading price of our ordinary shares could decline, and you could lose part or all of your investment.Risks Related to Our Business and Our IndustryIf our customers do not design our solutions into their product offerings, or if our customers’ product offerings are not commercially successful, ourbusiness would suffer.We sell our video and image processing system-on-a-chip, or SoC, solutions to original equipment manufacturers, or OEMs, who include our SoCs intheir products, and to original design manufacturers, or ODMs, who include our SoCs in the products that they supply to OEMs. We refer to ODMs as ourcustomers and OEMs as our end customers, except as otherwise indicated or as the context otherwise requires. Our video and image processing SoCs aregenerally incorporated into our customers’ products at the design stage, which is referred to as a design win. As a result, we rely on OEMs to design oursolutions into the products that they design and sell. Without these design wins, our business would be significantly harmed. We often incur significantexpenditures developing a new SoC solution without any assurance that an OEM will select our solution for design into its own product. Once an OEMdesigns a competitor’s device into its product, it becomes significantly more difficult for us to sell our SoC solutions to that OEM because changing suppliersinvolves significant cost, time, effort and risk for the OEM. Even if an OEM designs one of our SoC solutions into its product, we cannot be assured that the OEM’s product will be commercially successful overtime or at all. For example, in the past we have secured design wins for camera products that were never commercially released by our customer as a result offactors beyond our control. Similarly, higher than normal customer inventory levels at GoPro, Inc., or GoPro, significantly reduced GoPro’s demand for oursolutions and negatively reduced our revenue in the fiscal quarter ended January 31, 2016 and in the first half of fiscal years 2017 and 2018. If other productsor other product categories incorporating our SoC solutions are not commercially successful or experience rapid decline, our revenue and business will suffer.Similarly, even if an OEM designs one of our SoC solutions into its product, we are not assured that we will receive or continue to receive new designwins from that OEM. For example, GoPro, our largest OEM customer in fiscal year 2017, has used a competing solution in one of its recently introducedmainstream cameras, which has had and will continue to have a significant negative impact on our revenue. In fiscal year 2018, revenues for direct shipmentsto GoPro accounted for approximately 12% of our total revenue. We estimated that the revenues for shipments to GoPro’s ODMs represented an additionalapproximately 1% of our total revenue in fiscal year 2018. We anticipate that revenue from GoPro will represent a significantly smaller percentage of ourtotal revenue in fiscal year 2019 and beyond.We depend on a limited number of customers and end customers for a significant portion of our revenue. If we fail to retain or expand our customerrelationships, our revenue could decline.We derive a significant portion of our revenue from a limited number of ODMs who build products on behalf of a limited number of OEMs and from alimited number of OEMs to whom we ship directly. We anticipate that this customer concentration will continue for the foreseeable future. In fiscal years2018, 2017 and 2016, sales directly and through our distributors to our five largest ODM and OEM customers collectively accounted for approximately 51%,56% and 56% of our total revenue, respectively, and sales to our ten largest ODM and OEM customers collectively accounted for approximately 65%, 68%and 69% of our total revenue, respectively. We believe that our operating results for the foreseeable future will continue to depend on sales to a relativelysmall number of customers and end-customers. In the future, these customers may decide not to purchase our SoC solutions at all, may purchase fewersolutions than they did in the past or may alter their purchasing patterns. As substantially all of our sales to date have been made on a purchase order basis,these customers may cancel, change or delay product purchase commitments with little or no notice to us and without penalty and may make our revenuevolatile from period to period. For example, GoPro, our largest OEM customer in fiscal year 2017, has used a competing solution in one of its recentlyintroduced mainstream cameras, which had and will continue to have a significant negative impact on our revenue. Similarly, our customer DJI recentlyintroduced a UAV incorporating a competing solution that we expect will negatively impact DJI’s demand for our solutions in future periods. The loss of asignificant customer, or substantial reduction in purchases by a significant customer, could happen again at any time and without notice, and such loss wouldlikely harm our financial condition and results of operations. Moreover, because several of our largest OEM customers have a dominant position in theirmarkets, a loss of a significant customer may not be easily replaced through sales to other customers in that market.20 In addition, our relationships with some customers may deter other potential customers who compete with these customers from buying our solutions.To attract new customers or retain existing customers, we may have to offer these customers favorable prices on our solutions. In that event, our averageselling prices and gross margins would decline. The loss of a key customer, a reduction in sales to any key customer or our inability to attract new customerscould seriously impact our revenue and harm our results of operations.Our customers may cancel their orders, change production quantities or delay production. If we fail to accurately forecast demand for our solutions,revenue shortfalls or excess, obsolete or insufficient inventory could result.Our customers typically do not provide us with firm, long-term purchase commitments. Substantially all of our sales are made on a purchase orderbasis, which permits our customers to cancel, change or delay their product purchase commitments with little or no notice to us and without penalty to them.Because production lead times often exceed the amount of time required by our customers to fill their orders, we often must build SoCs in advance ofreceiving orders from customers, relying on an imperfect demand forecast to project volumes and product mix.Our SoCs are incorporated into products manufactured by or for our end customers, and as a result, demand for our solutions is influenced by thedemand for our customers’ products. Our ability to accurately forecast demand can be adversely affected by a number of factors, including inaccurateforecasting by our customers, miscalculations by our customers of their inventory requirements, changes in market conditions, adverse changes in ourproduct order mix and fluctuating demand for our customers’ products. For example, higher than normal customer inventory levels at GoPro significantlyimpacted our revenue in the fiscal quarter ended January 31, 2016 and in the first half of fiscal years 2017 and 2018. Higher than normal customer inventorylevels can occur in the future. Even after an order is received, our customers may cancel these orders, request a decrease in production quantities or request adelay in the delivery of our solutions. Any such cancellation, decrease or delay subjects us to a number of risks, most notably that our projected sales will notmaterialize on schedule or at all, leading to unanticipated revenue shortfalls and excess or obsolete inventory that we may be unable to sell to othercustomers.Alternatively, if we are unable to project customer requirements accurately, we may not build enough SoCs, which could lead to delays in productshipments and lost sales opportunities in the near term, as well as force our customers to identify alternative sources, which could affect our ongoingrelationships with these customers. We have in the past had customers significantly increase their requested production quantities with little or no advancenotice. If we do not fulfill customer demands in a timely manner, our customers may cancel their orders and we may be subject to customer claims for cost ofreplacement. In addition, the rapid pace of innovation in our industry could render portions of our inventory obsolete. Excess or obsolete inventory levelscould result in unexpected expenses or increases in our reserves that could adversely affect our business, operating results and financial condition. Inaddition, any significant future cancellations or deferrals of product orders could harm our margins, increase our write-offs due to product obsolescence andrestrict our ability to fund our operations. Our target markets may not grow or develop as we currently expect and are subject to market risks, any of which could harm our business, revenueand operating results.To date, our revenue has been attributable to demand for our video and image processing SoCs in the camera and infrastructure markets and thegrowth of these overall markets. We initially focused on the infrastructure market, and then leveraged our knowledge and experience to design solutions forthe camera market. We now derive substantially all of our revenue from the camera market, and our operating results are increasingly affected by trends in thecamera market. These trends include demand for higher resolution, increasing functionality, longer battery life, greater storage, connectivity requirementsand computer vision technology, while accommodating more sophisticated standards for video compression. We may be unable to predict the timing ordevelopment of these markets with accuracy. For example, the proliferation of smartphones having the ability to capture high-quality video and still imageshas significantly impacted the camera market in a relatively short period of time and continues to impact this market. In the Internet Protocol, or IP, securitycamera market, a slower than expected adoption rate for digital technology in place of analog solutions could slow the demand for our solutions. In theautomotive market, a slower than anticipated adoption of advanced driving assistance systems and autonomous driving functionality could reduce demandfor our new computer vision solutions. If our target markets, such as wearable cameras, automotive cameras, IP security cameras, and unmanned aerial vehiclecameras, also referred to as UAVs or drones, do not grow or develop in ways that we currently expect, demand for our video and image processing SoCs maynot materialize as expected and our business and operating results could suffer.21 If we fail to penetrate new markets, our revenue and financial condition could be harmed.In the past several years, substantially all of our revenue was generated from sales of our products to OEMs and ODMs of HD video cameras. Our futurerevenue growth, if any, will depend in part on our ability to expand within the camera markets with our video and image processing SoC solutions,particularly in the professional IP security and home security and monitoring camera markets, the automotive camera market, and the UAV market, as well asemerging markets such as the virtual reality camera and robotics markets. Each of these markets presents distinct and substantial risks and, in many cases,requires us to develop new functionality or software to address the particular requirements of that market. For example, we expect that computer visionfunctionality will become an increasingly important requirement in many of our current and future markets, including automotive, IP security, UAV, wearablecamera and robotics markets. As a result, we believe that our ability to develop advanced computer vision technology and gain customer acceptance of ourtechnology will be critical to our future success. Development of products to address new markets, such as the OEM automotive and robotics markets, couldnegatively impact our ability to develop new products for our current markets, which may harm our financial condition, particularly in the near term. Inaddition, we anticipate that as we move into new markets, such as the OEM automotive and robotics markets, we will likely face competition from largercompetitors with greater resources and more history in these markets. If any of these markets do not develop as we currently anticipate or if we are unable topenetrate them successfully with our solutions, our revenue could decline.Some of these markets are primarily served by only a few large, multinational OEMs with substantial negotiating power relative to us and, in someinstances, with internal solutions that are competitive to our products. Meeting the technical requirements and securing design wins with any of thesecompanies will require a substantial investment of our time and resources. We cannot assure you that we will secure design wins from these or othercompanies or that we will achieve meaningful revenue from the sales of our solutions into these markets. In addition, in these new markets, such as the OEMautomotive and robotics markets, we will likely face competition from larger competitors with greater resources and more history in these markets.If we fail to penetrate these or other new markets we are targeting, our revenue likely will decrease over time and our financial condition would likelysuffer.If we fail to develop and introduce new or enhanced solutions on a timely basis, our ability to attract and retain customers could be impaired andour competitive position could be harmed.We operate in a dynamic environment characterized by rapidly changing technologies and technological obsolescence. To compete successfully, wemust design, develop, market and sell enhanced solutions that provide increasingly higher levels of performance and functionality and that meet the costexpectations of our customers. Our existing or future solutions could be rendered obsolete by the introduction of new products by our competitors;convergence of other markets, such as smartphones, with or into the camera market; the market adoption of products based on new or alternativetechnologies; the emergence of new industry standards for video compression; or the requirement of additional functionality included in our products, suchas analytics or computer vision functionality. In addition, the markets for our solutions are characterized by frequent introduction of next-generation and newproducts, short product life cycles, increasing demand for added functionality and significant price competition. If we or our customers are unable to manageproduct transitions in a timely and cost-effective manner, our business and results of operations would suffer.Our failure to anticipate or timely develop new or enhanced solutions in response to technological shifts could result in decreased revenue and ourcompetitors achieving design wins that we sought. In particular, we may experience difficulties with product design, development of new software,manufacturing, marketing or qualification that could delay or prevent our development, introduction or marketing of new or enhanced solutions. In addition,delays in development could impair our relationships with our customers and negatively impact sales of our solutions under development. Moreover, it ispossible that our customers may develop their own product or adopt a competitor’s solution for products that they currently buy from us. If we fail tointroduce new or enhanced solutions that meet the needs of our customers or penetrate new markets in a timely fashion, we will lose market share and ouroperating results will be adversely affected.Fluctuations in our operating results on a quarterly and annual basis could cause the market price of our ordinary shares to decline.Our revenue and operating results have fluctuated significantly from period to period in the past and are likely to do so in the future. In particular, ourbusiness tends to be seasonal with higher revenue in our third quarter as our customers typically increase their production to meet holiday shopping season oryear-end demand for their products. We also may experience seasonally lower demand in our first quarter in the Asia-based portion of the IP security cameramarket as a result of industry seasonality and the impact of ODM and OEM factory closures associated with the Chinese New Year holiday. As a result, youshould not rely on period-to-period comparisons of our operating results as an indication of our future performance. In future periods, our revenue and resultsof operations may be below the expectations of analysts and investors, which could cause the market price of our ordinary shares to decline.22 Factors that may affect our operating results include: •fluctuations in demand, sales cycles, product mix, and prices for our products; •the forecasting, scheduling, rescheduling or cancellation of orders by our customers; •shifts in consumer preferences and any resultant change in demand for video and image capture devices into which our solutions areincorporated; •changes in the competitive dynamics of our markets, including new entrants or pricing pressures; •delays in our customers’ ability to manufacture and ship products that incorporate our solutions caused by internal and external factorsbeyond our control; •our ability to successfully define, design and release new solutions in a timely manner that meet our customers’ needs; •changes in manufacturing costs, including wafer, test and assembly costs, mask costs, manufacturing yields and product quality andreliability; •timely availability of adequate manufacturing capacity from our manufacturing subcontractors; •the timing of product announcements by our competitors or by us; •incurrence of research and development and related new products expenditures; •write-downs of inventory for excess quantities and technological obsolescence; •future accounting pronouncements and changes in accounting policies; •volatility in our share price, which may lead to higher stock-based compensation expense; •volatility in our effective tax rate; •general socioeconomic and political conditions in the countries where we operate or where our products are sold or used; and •costs associated with litigation, especially related to intellectual property.Moreover, the semiconductor industry has historically been cyclical in nature, reflecting overall economic conditions as well as budgeting andbuying patterns of consumers. We expect these cyclical conditions to continue. As a result, our quarterly operating results are difficult to predict, even in thenear term. Our expense levels are relatively fixed in the short term and are based, in part, on our expectations of future revenue. If revenue levels are below ourexpectations, we may experience material impacts on our business, including declines in margins and profitability, or incur losses. For example, in the firsthalf of fiscal year 2017 and in the fourth quarter of fiscal year 2018, our revenue declined 21% and 19%, respectively, compared to the same periods of theprior fiscal years, resulting in a substantial decline in profit and cash flows from operating activities. We may experience similar declines in the future, whichwould harm our operating results.Achieving design wins is subject to lengthy competitive selection processes that require us to incur significant costs. Even if we begin a productdesign, a customer may decide to cancel or change its product plans, resulting in no revenue from such expenditures.We are focused on selling our video and image processing solutions to ODMs and OEMs for incorporation into their products at the design stage.These efforts to achieve design wins typically are lengthy, especially in emerging markets we intend to address such as the OEM automotive market, and inany case can require us to both incur design and development costs and dedicate scarce engineering resources in pursuit of a single customer opportunity. Wemay not prevail in the competitive selection process and, even when we do achieve a design win, we may never generate any revenue despite incurringdevelopment expenditures. For example, in the past we had achieved certain design wins and projected substantial future revenue as a result of such designwins. Subsequently, based on factors outside of our control, the applicable end customers abruptly cancelled the projects, with no notice to us, resulting in aloss of projected revenue. In addition, even if an OEM designs one of our SoC solutions into one of its products, we cannot be assured that we will secure newdesign wins from that OEM for future products. For example, GoPro, our largest OEM customer in fiscal year 2017, has used a competing solution in one ofits recently introduced mainstream cameras, which will have a significant negative impact on our revenue in the current fiscal year and beyond.23 These risks are exacerbated by the fact that some of our end customers’ products, particularly in the camera market, likely will have short life cycles.Further, even after securing a design win, we have experienced and may again experience delays in generating revenue from our solutions as a result of thelengthy product development cycle typically required, if we generate any revenue at all as a result of any such design win.Our customers generally take a considerable amount of time to evaluate our solutions. The typical time from early engagement by our sales force toactual product introduction runs from nine to 12 months for the camera market, and 12 to 24 months for the infrastructure market, though it may take longerin new markets we intend to address such as the OEM automotive and robotics markets. The delays inherent in these lengthy sales cycles increase the riskthat a customer will decide to cancel, curtail, reduce or delay its product plans, causing us to lose anticipated sales. In addition, any delay or cancellation of acustomer’s plans could harm our financial results, as we may have incurred significant expense and generated no revenue. Finally, our customers’ failure tosuccessfully market and sell their products could reduce demand for our SoC solutions and harm our business, financial condition and results of operations. Ifwe were unable to generate revenue after incurring substantial expenses to develop any of our solutions, our business would suffer.The average selling prices of video and image processing solutions in our target markets have historically decreased over time and will likely do soin the future, which could harm our revenue and gross margins.Average selling prices of semiconductor products in the markets we serve have historically decreased over time, and we expect such declines tocontinue to occur for our solutions over time. Our gross margins and financial results will suffer if we are unable to offset reductions in our average sellingprices by reducing our costs, developing new or enhanced SoC solutions on a timely basis with higher selling prices or gross margins, or increasing our salesvolumes. Additionally, because we do not operate our own manufacturing, assembly or testing facilities, we may not be able to reduce our costs as rapidly ascompanies that operate their own facilities, and our costs may even increase, which could also reduce our gross margins. In the past, we have reduced theprices of our SoC solutions in anticipation of future competitive pricing pressures, new product introductions by us or our competitors and other factors.Recently, we have experienced competitive pricing pressures at the low ends of the automotive aftermarket camera market and China-based IP securitycamera market. We expect that we will have to address pricing pressures again in the future, which could require us to reduce the prices of our SoC solutionsand harm our operating results.We expect competition to increase in the future, which could have an adverse effect on our revenue and market share.The global semiconductor market in general, and the video and image processing markets in particular, are highly competitive. We compete indifferent target markets to various degrees on the basis of a number of competitive factors, including our solutions’ performance, features, functionality,energy efficiency, size, ease with which our solution may be integrated into our customers’ products, customer support, reliability and price, as well as on thebasis of our reputation. We expect competition to increase and intensify as more and larger semiconductor companies enter our markets and as large OEMsgrow their internal resources and potentially develop their own semiconductor solutions. In addition, as we move into new markets, such as the OEMautomotive and robotics markets, we will face competition from larger competitors with longer histories in these markets. Increased competition could resultin price pressure, reduced profitability and loss of market share, any of which could harm our business, revenue and operating results.Our competitors range from large, international companies offering a wide range of semiconductor products to smaller companies specializing innarrow markets. In the wearable sports camera market, our primary competitors are vertically integrated divisions of camera device OEMs, including SonyCorporation, or Sony, and Panasonic Corporation, as well as HiSilicon Technologies Co., Ltd., or HiSilicon, and Socionext Inc., or Socionext, an entitycreated from the merger of the system LSI businesses of Fujitsu Ltd. and Panasonic Corporation. In the IP security camera market, our primary competitorsinclude Fullhan Microelectronics Co., Ltd., Geo Semiconductor, Inc., Grain Media, Inc., which was recently acquired by Novatek Microelectronics Corp., orNovatek, HiSilicon, Intel Corporation, or Intel, Movidius Ltd., which was recently acquired by Intel, OmniVision Technologies, Inc., or OmniVision,Qualcomm Incorporated, or Qualcomm, Realtek Semiconductor Corp., Socionext, and Texas Instruments Incorporated, or Texas Instruments, as well asvertically integrated divisions of IP Security camera device OEMs, including Axis Communications AB and Sony. In the automotive camera market, wecompete against Allwinner Technology Co., Ltd., Alpha Imaging Technology Corp., Core Logic, Inc., Novatek, NXP Semiconductors N.V., OmniVision,Qualcomm, Renesas Electronics Corporation, Sunplus Technology Co. Ltd., and Texas Instruments. Our primary competitors in the UAV camera marketinclude HiSilicon, Intel, NVIDIA Corporation and Qualcomm. Our primary competitors in the infrastructure market include GigPeak, Inc., Intel, and TexasInstruments. Certain of our customers and suppliers also have divisions that produce products competitive with ours. In addition, certain third-partydevelopers of technology competitive to our solutions have licensed their technology, including image signal processing and computer vision IP, whichpotentially enables a greater number of competitors to offer competitive solutions. We expect competition in our current markets to increase in the future asexisting competitors improve or expand their product offerings and as potential new competitors enter these markets.24 Our ability to compete successfully depends on elements both within and outside of our control, including industry and general economic trends.Many of our competitors are substantially larger, have greater financial, technical, marketing, distribution, customer support and other resources, are moreestablished than we are and have significantly better brand recognition and broader product offerings which may enable them to develop and enable newtechnology into product solutions better or faster than us and to better withstand adverse economic or market conditions in the future. Our ability to competewill depend on a number of factors, including: •our ability to anticipate market and technology trends and successfully develop solutions that meet market needs; •our success in identifying and penetrating new markets, applications and customers; •our ability to understand the price points and performance metrics of competing products in the marketplace; •our solutions’ performance and cost-effectiveness relative to that of competing products; •our ability to gain access to leading design tools and product specifications at the same time as our competitors; •our ability to develop and maintain relationships with key OEMs and ODMs; •our products’ effective implementation of video processing standards; •our ability to protect our intellectual property; •our ability to expand international operations in a timely and cost-efficient manner; •our ability to deliver products in volume on a timely basis at competitive prices; •our ability to support our customers’ incorporation of our solutions into their products; and •our ability to recruit design and application engineers with expertise in image video and image processing technologies and sales andmarketing personnel.Our competitors may also establish cooperative relationships among themselves or with third parties or acquire companies that provide similarproducts to ours. As a result, new competitors or alliances may emerge that could acquire significant market share. Any of these factors, alone or incombination with others, could harm our business and result in a loss of market share and an increase in pricing pressure.We are dependent on sales of a limited number of video and image processing solutions, and a decline in market adoption of these solutions couldharm our business.From inception through January 31, 2018, our revenue has been generated primarily from the sale of a limited number of high-definition, or HD, videoand image processing SoC solutions in the camera and infrastructure markets. Moreover, we currently derive substantially all of our revenue from the sale ofour SoCs for use in the camera market and we expect to do so for the next several years. As a result, continued market adoption of our SoC solutions in thecamera market is critical to our future success. If demand for our SoC solutions were to decline, or demand for products incorporating our solutions declines,does not continue to grow or does not grow as expected, our revenue would decline and our business would be harmed.25 We do not have long-term supply contracts with our third-party manufacturing vendors, and they may not allocate sufficient capacity to us atreasonable prices to meet future demands for our solutions.The semiconductor industry is subject to intense competitive pricing pressure from customers and competitors. Accordingly, any increase in the costof our solutions, whether by adverse purchase price variances or adverse manufacturing cost variances, will reduce our gross margins and operating profit. Wecurrently do not have long-term supply contracts with most of our primary third-party vendors, and we negotiate pricing with our main vendors on a purchaseorder-by-purchase order basis. Therefore, they are not obligated to perform services or supply product to us for any specific period, in any specific quantities,or at any specific price, except as may be provided in a particular purchase order. Availability of foundry capacity has in the recent past been limited due tostrong demand. The ability of our foundry vendors to provide us with a product, which is sole sourced at each foundry, is limited by their available capacity,existing obligations and technological capabilities. Foundry capacity may not be available when we need it or at reasonable prices. None of our third-partyfoundry or assembly and test vendors has provided contractual assurances to us that adequate capacity will be available to us to meet our anticipated futuredemand for our solutions. Our foundry and assembly and test vendors may allocate capacity to the production of other companies’ products while reducingdeliveries to us on short notice. In particular, other companies that are larger and better financed than we are or that have long-term agreements with ourfoundry or assembly and test vendors may cause our foundry or assembly and test vendors to reallocate capacity to them, decreasing the capacity available tous. Converting or transferring manufacturing from a primary location or supplier to a backup foundry vendor could be expensive and would likely take atleast two or more quarters. There are only a few foundries, including Samsung and Taiwan Semiconductor Manufacturing Co., Ltd., or TSMC, that arecurrently available for certain advanced process technologies that we utilize or may utilize, 10 or 7 nanometer. As we continue to develop solutions inadvanced process nodes we will be increasingly dependent upon such foundries.If, in the future, we enter into arrangements with suppliers that include additional fees to expedite delivery, nonrefundable deposits or loans inexchange for capacity commitments or commitments to purchase specified quantities over extended periods, such arrangements may be costly, reduce ourfinancial flexibility and be on terms unfavorable to us, if we are able to secure such arrangements at all. Moreover, if we are able to secure foundry capacity,we may be obligated to use all of that capacity or incur penalties. These penalties could harm our financial results. To date, we have not entered into any sucharrangements with our suppliers. If we need additional foundry or assembly and test subcontractors because of increased demand or the inability to obtaintimely and adequate deliveries from our current vendors, we may not be able to do so cost-effectively, if at all.A substantial portion of our revenue is processed through a single distributor and the loss of this distributor may cause disruptions in our shipments,which may adversely affect our operations and financial condition.We sell a significant percentage of our solutions through a single distributor, Wintech Microelectronics Co., Ltd., or Wintech, which serves as our non-exclusive sales representative in Asia, other than Japan. Approximately 59%, 60% and 67% of our revenue was derived from sales through Wintech for thefiscal years ended January 31, 2018, 2017 and 2016, respectively. We anticipate that a significant portion of our revenue will continue to be derived fromsales through Wintech in the foreseeable future. Our current agreement with Wintech is effective until September 2018, unless it is terminated earlier by eitherparty for any or no reason with 90 days written notice or by failure of the breaching party to cure a material breach within 30 days following written notice ofsuch material breach by the non-breaching party. Our agreement with Wintech will automatically renew for additional successive 12-month terms unless atleast 60 days before the end of the then-current term either party provides written notice to the other party that it elects not to renew the agreement.Termination of the relationship with Wintech, either by us or by Wintech, could result in a temporary or permanent loss of revenue. We may not be successfulin finding suitable alternative distributors on satisfactory terms, or at all, and this could adversely affect our ability to effectively sell our solutions in certaingeographical locations or to certain end customers. Furthermore, Wintech, or any successor or other distributors we do business with, may face issuesobtaining credit, which could impair their ability to make timely payments to us. We are subject to risks associated with our distributors' product inventories.We sell many of our products to customers through distributors who maintain their own inventory of our products for sale to dealers and endcustomers. We allow limited price adjustments on sales to distributors. Price adjustments may be effected by way of credits for future product or by cashpayments to the distributor, either in arrears or in advance, using estimates based on historical transactions. Currently we recognize revenues for sales todistributors upon sell through by the distributors. Upon the adoption of Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers(Topic 606) (“ASU 606”) effective February 1, 2018, we will recognize revenue on sales to distributors upon shipment and transfer of control (known as “sell-in” revenue recognition) based on the amount of consideration expected to be received. To the extent that the actual consideration received is materiallydifferent from estimated variable consideration used in revenue recognition, we may be required to adjust revenue in subsequent periods.26 If our distributors are unable to sell an adequate amount of their inventory of our products in a given quarter to dealers and end customers or if theydecide to decrease their inventories for any reason, such as adverse global economic conditions or a downturn in technology spending, our sales to thesedistributors and our revenues may decline. We also face the risk that our distributors may purchase, or for other reasons accumulate, inventory levels of ourproducts in any particular quarter in excess of future anticipated sales to end customers. If such sales do not occur in the time frame anticipated by thesedistributors for any reason, these distributors may substantially decrease the amount of product they order from us in subsequent periods until their inventorylevels realign with end-customer demand, which would harm our business and could adversely affect our revenues in such subsequent periods. Our reserveestimates associated with products stocked by our distributors are based largely on reports that our distributors provide to us on a weekly or monthly basis.To date, we believe this resale and channel inventory data have been generally accurate. To the extent that these data are inaccurate or not received in atimely manner, we may not be able to make reserve estimates for future periods accurately or at all.Deterioration of the financial conditions of our customers could adversely affect our operating results.Deterioration of the financial condition of our distributors or customers could adversely impact our collection of accounts receivable. We regularlyreview the collectability and creditworthiness of our distributors and customers to determine an appropriate allowance for doubtful receivables. Based on ourreview of our distributors and customers, we currently have only immaterial reserves for uncollectible accounts. If our uncollectible accounts, however, wereto exceed our current or future allowance for doubtful receivables, our operating results would be negatively impacted.The loss of any of our key personnel could seriously harm our business.We believe our future success depends in large part upon the continuing services of the members of our senior management team and variousengineering and other technical personnel. If one or more of our senior executives or other key personnel are unable or unwilling to continue in their presentpositions, we may not be able to replace them easily or at all, our business may be disrupted, and our financial condition and results of operations may bematerially and adversely affected. In addition, if any member of our senior management team or any of our other key personnel joins a competitor or forms acompeting company, we may experience material disruption of our operations and development plans and lose customers, know-how and key professionalsand staff members, and we may incur increased operating expenses as the attention of other senior executives is diverted to recruit replacements for keypersonnel.We rely on highly skilled personnel and, if we are unable to hire, retain or motivate key personnel, we may not be able to grow effectively.Our performance largely depends on the talents and efforts of highly skilled individuals. Our future success depends on our continuing ability toidentify, hire, develop, motivate, and retain highly skilled personnel for all areas of our organization. Our industry is characterized by high demand andintense competition for talent. The pool of qualified candidates is limited, particularly in Silicon Valley and parts of Asia for VLSI and computer visionengineers, and certain of our competitors and potential competitors with greater resources have directly targeted our employees. In addition, ourcompensation arrangements, such as our equity award programs, may not always be successful in attracting new employees and retaining and motivating ourexisting employees. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existingemployees.If we do not generate revenue growth, we may not be able to execute our business plan and our operating results could suffer.You should not rely on our revenue growth, gross margins or operating results for any prior quarterly or annual periods as an indication of our futureoperating performance. In the past, we have experienced significant growth in a short period of time. Our revenue increased from $21.5 million in fiscal year2008 to $316.4 million in fiscal year 2016. Recently, however, we have not sustained this growth rate. Our revenue decreased to $310.3 million in fiscal year2017 and to $295.4 million in fiscal year 2018. We continue to invest in the development of new technology and solutions and expect our research anddevelopment expenditures to increase compared to prior periods. Accordingly, if we are unable to generate or maintain adequate revenue growth, ourfinancial results could suffer and our stock price could decline.27 If we are unable to manage any future growth, we may not be able to execute our business plan and our operating results could suffer.Our business has grown rapidly. Our future operating results depend to a large extent on our ability to successfully manage any expansion and growth,including the challenges of managing a company with headquarters in the United States and the majority of its employees in Asia. We are increasing ourinvestment in research and development and other functions to grow our business and address new markets, such as the OEM automotive market. To manageour growth successfully and handle the responsibilities of being a public company, we believe we must effectively, among other things: •recruit, hire, train and manage additional qualified engineers for our research and development activities, particularly in our offices inAsia and especially for the positions of semiconductor design and systems, applications engineering and computer vision development; •add additional sales and business development personnel; •add additional finance and accounting personnel; •maintain and improve our administrative, financial and operational systems, procedures and controls; and •enhance our information technology support for enterprise resource planning and design engineering by adapting and expanding oursystems and tool capabilities, and properly training new hires as to their use.We are likely to incur the costs associated with these increased investments earlier than some of the anticipated benefits, and the return on theseinvestments, if any, may be lower, may develop more slowly than we expect or may not materialize. In addition, development of products to addressemerging markets, such as the OEM automotive market, could negatively impact our ability to develop new products for our current markets, which mayharm our financial condition, particularly in the near term.If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities or develop new solutions, and wemay fail to satisfy customer product or support requirements, maintain product quality, execute our business plan or respond to competitive pressures.While we intend to continue to invest in research and development, we may be unable to make the substantial investments that are required toremain competitive in our business.The semiconductor industry requires substantial investment in research and development in order to bring to market new and enhanced solutions. Ourresearch and development expense was $115.5 million, $101.2 million and $82.9 million in fiscal years 2018, 2017 and 2016, respectively. We expect toincrease our research and development expenditures as compared to prior periods as part of our strategy of focusing on the development of innovative videoand image processing solutions with increased functionality, such as analytics or computer vision capabilities, and as we target new markets, such as theautomotive OEM and robotics markets. We are unable to predict whether we will have sufficient resources to maintain the level of investment in research anddevelopment required to remain competitive. For example, development in the latest process nodes, such as 14 and 10 nm, can cost significantly more thanrequired to develop in larger process nodes, such as 28 nm. This added cost could prevent us from being able to maintain a technology advantage over largercompetitors that have significantly more resources to invest in research and development. In addition, we cannot assure you that the technologies which arethe focus of our research and development expenditures will become commercially successful or generate any revenue.We may have difficulty accurately predicting our future revenue and appropriately budgeting our expenses.The rapidly evolving nature of the markets in which we sell our solutions, combined with substantial uncertainty concerning how these markets maydevelop and other factors beyond our control, limits our ability to accurately forecast quarterly or annual revenue. In addition, because we record asignificant portion of our revenue from sales when we have received notification from our distributors that they have sold our products, some of the revenuewe record in a quarter may be derived from sales of products shipped to our distributors during previous quarters. This revenue recognition methodologylimits our ability to forecast quarterly or annual revenue accurately. We are currently expanding our staffing and increasing our expenditures in anticipationof future revenue growth. If our revenue does not increase as anticipated, we could incur significant losses due to our higher expense levels if we are not ableto decrease our expenses in a timely manner to offset any shortfall in future revenue.28 We may experience difficulties demonstrating the value to customers of newer, higher priced and higher margin solutions if they believe existingsolutions are adequate to meet end customer expectations.As we develop and introduce new solutions, we face the risk that customers may not value or be willing to bear the cost of incorporating these newersolutions into their products, particularly if they believe their customers are satisfied with current solutions. Regardless of the improved features or superiorperformance of the newer solutions, customers may be unwilling to adopt our new solutions due to design or pricing constraints. Owing to the extensive timeand resources that we invest in developing new solutions, if we are unable to sell customers new generations of our solutions, our revenue could decline andour business, financial condition, operating results and cash flows could be negatively affected.The complexity of our solutions could result in unforeseen delays or expenses from undetected defects, errors or bugs in hardware or software whichcould reduce the market adoption of our new solutions, damage our reputation with current or prospective customers and adversely affect our operatingcosts.Highly complex SoC solutions such as ours frequently contain defects, errors and bugs when they are first introduced or as new versions are released.We have in the past and may in the future experience these defects, errors and bugs. If any of our solutions have reliability, quality or compatibility problems,we may not be able to successfully correct these problems in a timely manner or at all. In addition, if any of our proprietary features contain defects, errors orbugs when first introduced or as new versions of our solutions are released, we may be unable to timely correct these problems. Consequently, our reputationmay be damaged and customers may be reluctant to buy our solutions, which could harm our ability to retain existing customers and attract new customers,and could adversely affect our financial results. In addition, these defects, errors or bugs could interrupt or delay sales to our customers. If any of theseproblems are not found until after we have commenced commercial production of a new product, we may incur significant additional development costs andproduct recall, repair or replacement costs. These problems may also result in claims against us by our customers or others.Camera manufacturers incorporate components supplied by multiple third parties, and a supply shortage or delay in delivery of these componentscould delay orders for our solutions by our customers.Our customers purchase components used in the manufacture of their cameras from various sources of supply, often involving several specializedcomponents, including lenses, sensors, and memory chips. Any supply shortage or delay in delivery by third-party component suppliers, or a third-partysupplier’s cessation or shut down of its business, may prevent or delay production of our customers’ products. In addition, replacement or substitutecomponents may not be available on commercially reasonable terms, or at all. As a result of delays in delivery or supply shortages of third-party components,orders for our solutions may be delayed or canceled and our business may be harmed. For example, a disruption in the availability of image sensors fromSony Corporation as a result of the April 14, 2016 Kumamoto, Japan earthquake impacted our customers’ ability to build or launch cameras and, as a result,negatively impacted the timing and scope of demand for our SoCs in the second and third quarters of fiscal year 2017. Similarly, errors or defects within acamera system or in the manner in which the various components interact could prevent or delay production of our customers’ products, which could harmour business.We outsource our wafer fabrication, assembly and testing operations to third parties, and if these parties fail to produce and deliver our productsaccording to requested demands in specification, quantity, cost and time, our reputation, customer relationships and operating results could suffer.We rely on third parties for substantially all of our manufacturing operations, including wafer fabrication, assembly and testing. Currently, themajority of our SoCs are supplied by Samsung in facilities located in Austin, Texas and South Korea, from whom we have the option to purchase both fullyassembled and tested products as well as tested die in wafer form for assembly. Samsung subcontracts the assembly and initial testing of the assembled chipsit supplies to us to Signetics Corporation and STATS ChipPAC Ltd. In the case of purchases of tested die from Samsung, we contract the assembly toAdvanced Semiconductor Engineering, Inc., or ASE. We also have products supplied by Global UniChip Corporation, or GUC, in Taiwan, from whom wepurchase fully assembled and tested products. The wafers used by GUC in the assembly of our products are manufactured by TSMC in Taiwan. The assemblyis done by GUC subcontracted assembly suppliers ASE, and Powertech Technology Inc, or PTI. Final testing of all of our products is handled by King YuanElectronics Co., Ltd. or Sigurd Corporation under the supervision of our engineers. We depend on these third parties to supply us with material of a requestedquantity in a timely manner that meets our standards for yield, cost and manufacturing quality. We do not have any long-term supply agreements with any ofour manufacturing suppliers. If one or more of these vendors terminates its relationship with us, or if we encounter any problems with our manufacturingsupply chain, our ability to ship our solutions to our customers on time and in the quantity required would be adversely affected, which in turn could causean unanticipated decline in our sales and damage our customer relationships.29 If our foundry vendors do not achieve satisfactory yields or quality, our reputation and customer relationships could be harmed.The fabrication of our video and image processing SoC solutions is a complex and technically demanding process. Minor deviations in themanufacturing process can cause substantial decreases in yields, and in some cases, cause production to be suspended. Our foundry vendors, from time totime, experience manufacturing defects and reduced manufacturing yields, including in the fabrication of our SoCs. Changes in manufacturing processes orthe inadvertent use of defective or contaminated materials by our foundry vendors could result in lower than anticipated manufacturing yields orunacceptable performance of our SoCs. Many of these problems are difficult to detect at an early stage of the manufacturing process and may be timeconsuming and expensive to correct. Poor yields from our foundry vendors, or defects, integration issues or other performance problems in our solutions,could cause us significant customer relations and business reputation problems, harm our financial results and give rise to financial or other damages to ourcustomers. Our customers might consequently seek damages from us for their losses. A product liability claim brought against us, even if unsuccessful, wouldlikely be time consuming and costly to defend.Each of our SoC solutions is manufactured at a single location. If we experience manufacturing problems at a particular location, we would be requiredto transfer manufacturing to a new location or supplier. Converting or transferring manufacturing from a primary location or supplier to a backup fabricationfacility could be expensive and could take two or more quarters. During such a transition, we would be required to meet customer demand from our then-existing inventory, as well as any partially finished goods that could be modified to the required product specifications. We do not seek to maintainsufficient inventory to address a lengthy transition period because we believe it is uneconomical to keep more than minimal inventory on hand. As a result,we may not be able to meet customer needs during such a transition, which could delay shipments, cause production delays, result in a decline in our salesand damage our customer relationships.We may experience difficulties in transitioning to new wafer fabrication process technologies or in achieving higher levels of design integration,which may result in reduced manufacturing yields, delays in product deliveries and increased costs.We aim to use the most advanced manufacturing process technology appropriate for our products that is available from our third-party foundries. As aresult, we periodically evaluate the benefits of migrating our solutions to smaller geometry process technologies in order to improve performance and reducecosts. We believe this strategy will help us remain competitive. These ongoing efforts require us from time to time to modify the manufacturing processes forour products and to redesign some products, which in turn may result in delays in product deliveries. We may face difficulties, delays and increased expenseas we transition our products to new processes, such as the 10nm process nodes, and potentially to new foundries. We depend on Samsung and TSMC, as theprincipal foundries for our products, to transition to new processes successfully. We cannot assure you that Samsung or TSMC will be able to effectivelymanage such transitions or that we will be able to maintain our relationship with Samsung or TSMC or develop relationships with new foundries. Moreover,as we utilize more advanced process nodes beyond 10nm, we are increasingly dependent upon Samsung and TSMC, who are two of the few foundriescurrently available for certain advanced process technologies. If we or our foundry vendors experience significant delays in transitioning to smallergeometries or fail to efficiently implement transitions, we could experience reduced manufacturing yields, delays in product deliveries and increased costs,all of which could harm our relationships with our customers and our operating results. As new processes become more prevalent, we expect to continue tointegrate greater levels of functionality, as well as more end-customer and third-party intellectual property, into our solutions. We may not be able to achievehigher levels of design integration or deliver new integrated solutions on a timely basis.We rely on third-party vendors to supply software development tools to us for the development of our new products, and we may be unable to obtainthe tools necessary to develop or enhance new or existing products.We rely on third-party software development tools to assist us in the design, simulation and verification of new products or product enhancements. Tobring new products or product enhancements to market in a timely manner, or at all, we need software development tools that are sophisticated enough ortechnologically advanced enough to complete our design, simulations and verifications. In the future, the design requirements necessary to meet consumerdemands for more features and greater functionality from our solutions may exceed the capabilities of available software development tools. Unavailabilityof software development tools may result in our missing design cycles or losing design wins, either of which could result in a loss of market share ornegatively impact our operating results.Because of the importance of software development tools to the development and enhancement of our solutions, our relationships with leaders in thecomputer-aided design industry, including Cadence Design Systems, Inc., Mentor Graphics Corporation and Synopsys, Inc., are critical to us. We haveinvested significant resources to develop relationships with these industry leaders. We believe that utilizing next-generation development tools to design,simulate and verify our products will help us remain at the forefront of the video compression market, and develop solutions that utilize leading-edgetechnology on a rapid basis. If these relationships are not successful, we may be unable to develop new products or product enhancements in a timely manner,which could result in a loss of market share, a decrease in revenue or negatively impact our operating results.30 Our failure to adequately protect our intellectual property rights could impair our ability to compete effectively or defend ourselves from litigation,which could harm our business, financial condition and results of operations.Our success depends, in part, on our ability to protect our intellectual property. We rely primarily on patent, copyright, trademark and trade secretlaws, as well as confidentiality and non-disclosure agreements and other contractual protections, to protect our proprietary technologies and know-how, all ofwhich offer only limited protection. The steps we have taken to protect our intellectual property rights may not be adequate to prevent misappropriation ofour proprietary information or infringement of our intellectual property rights, and our ability to prevent such misappropriation or infringement is uncertain,particularly in countries outside of the United States. The failure of our patents to adequately protect our technology might make it easier for our competitorsto offer similar products or technologies, which would harm our business. For example, our patents and patent applications could be opposed, contested,circumvented, designed around by our competitors or be declared invalid or unenforceable in judicial or administrative proceedings. Our foreign patentprotection is generally not as comprehensive as our U.S. patent protection and may not protect our intellectual property in some countries where our productsare sold or may be sold in the future. Many U.S.-based companies have encountered substantial intellectual property infringement in foreign countries,including countries where we sell products. Even if foreign patents are granted, effective enforcement in foreign countries may not be available. For example,the legal environment relating to intellectual property protection in China is relatively weak, often making it difficult to create and enforce such rights. Wemay not be able to effectively protect our intellectual property rights in China or elsewhere. If such an impermissible use of our intellectual property or tradesecrets were to occur, our ability to sell our solutions at competitive prices may be adversely affected and our business, financial condition, operating resultsand cash flows could be materially and adversely affected.The legal standards relating to the validity, enforceability and scope of protection of intellectual property rights are uncertain and evolving. Wecannot assure you that others will not develop or patent similar or superior technologies, products or services, or that our patents, trademarks and otherintellectual property will not be challenged, invalidated or circumvented by others.Unauthorized copying or other misappropriation of our proprietary technologies could enable third parties to benefit from our technologies withoutpaying us for doing so, which could harm our business. Monitoring unauthorized use of our intellectual property is difficult and costly. Although we are notaware of any unauthorized use of our intellectual property in the past, it is possible that unauthorized use of our intellectual property may have occurred ormay occur without our knowledge. We cannot assure you that the steps we have taken will prevent unauthorized use of our intellectual property. Our failureto effectively protect our intellectual property could reduce the value of our technology in licensing arrangements or in cross-licensing negotiations.We may in the future need to initiate infringement claims or litigation in order to try to protect our intellectual property rights. Litigation, whether weare a plaintiff or a defendant, can be expensive, time-consuming and may divert the efforts of our technical staff and management, which could harm ourbusiness, whether or not such litigation results in a determination favorable to us. Litigation also puts our patents at risk of being invalidated or interpretednarrowly and our patent applications at risk of not being issued. Additionally, any enforcement of our patents or other intellectual property may provokethird parties to assert counterclaims against us. If we are unable to protect our proprietary rights or if third parties independently develop or gain access to ouror similar technologies, our business, revenue, reputation and competitive position could be harmed.Third parties’ assertions of infringement of their intellectual property rights could result in our having to incur significant costs and cause ouroperating results to suffer.The semiconductor industry is characterized by vigorous protection and pursuit of intellectual property rights and positions, which has resulted inprotracted and expensive litigation for many companies. Certain of our customers have received, and we expect, particularly to the extent we gain greatermarket visibility, that in the future we may receive, communications from others alleging our infringement of their patents, trade secrets or other intellectualproperty rights. In addition, certain of our end customers have been the subject of lawsuits alleging infringement of intellectual property rights by productsincorporating our solutions, including the assertion that the alleged infringement may be attributable, at least in part, to our technology. Lawsuits resultingfrom such allegations could subject us to significant liability for damages and invalidate our proprietary rights, though this has not occurred to date. Anypotential intellectual property litigation also could force us to do one or more of the following:31 •stop selling products or using technology that contain the allegedly infringing intellectual property; •lose the opportunity to license our technology to others or to collect royalty payments based upon successful protection and assertionof our intellectual property against others; •incur significant legal expenses; •pay substantial damages to the party whose intellectual property rights we may be found to be infringing; •redesign those products that contain the allegedly infringing intellectual property; or •attempt to obtain a license to the relevant intellectual property from third parties, which may not be available on reasonable terms or atall.Any significant impairment of our intellectual property rights from any litigation we face could harm our business and our ability to compete.Any potential dispute involving our patents or other intellectual property could affect our customers, which could trigger our indemnificationobligations to them and result in substantial expense to us.In any potential dispute involving our patents or other intellectual property, our customers could also become the target of litigation. Certain of ourcustomers have received notices from third parties claiming to have patent rights in certain technology and inviting our customers to license this technology,and certain of our end customers have been the subject of lawsuits alleging infringement of patents by products incorporating our solutions, including theassertion that the alleged infringement may be attributable, at least in part, to our technology. Because we indemnify our customers for intellectual propertyclaims made against them for products incorporating our technology, any litigation could trigger technical support and indemnification obligations undersome of our license agreements, which could result in substantial expense to us. Although we have not incurred significant indemnity expenses related tointellectual property claims to date, we anticipate that we will receive requests for indemnity in the future pursuant to our license agreements with ourcustomers. In addition, other customers or end customers with whom we do not have formal agreements requiring us to indemnify them may ask us toindemnify them if a claim is made as a condition to awarding future design wins to us. Because some of our ODMs and OEMs are larger than we are and havegreater resources than we do, they may be more likely to be the target of an infringement claim by third parties than we would be, which could increase ourchances of becoming involved in a future lawsuit. Although we have not yet been subject to such claims, if any such claims were to succeed, we might beforced to pay damages on behalf of our ODMs or OEMs that could increase our expenses, disrupt our ability to sell our solutions and reduce our revenue. Inaddition to the time and expense required for us to supply support or indemnification to our customers, any such litigation could severely disrupt or shutdown the business of our customers, which in turn could hurt our relations with our customers and cause the sale of our products to decrease.A breach of our security systems may have a material adverse effect on our business.Our security systems are designed to maintain the physical security of our facilities and information systems and protect our customers’, suppliers’ andemployees’ confidential information. Accidental or willful security breaches or other unauthorized access by third parties to our facilities or our informationsystems or the existence of computer viruses in our data or software could expose us to a risk of information loss and misappropriation of proprietary andconfidential information. Security breaches, computer malware and computer hacking attacks have become more prevalent and sophisticated. Experiencedcomputer programmers and hackers may be able to penetrate our security controls and misappropriate or compromise our confidential information or that ofthird parties or create system disruptions. Computer programmers and hackers also may be able to develop and deploy viruses, worms and other malicioussoftware programs that attack our information systems and cause disruptions of our business. Data security breaches may also result from non-technicalmeans, for example, actions by an employee. Any theft or misuse of this information could result in, among other things, unfavorable publicity, damage toour reputation, difficulty in marketing our products, allegations by our customers that we have not performed our contractual obligations, litigation byaffected parties and possible financial obligations for liabilities and damages related to the theft or misuse of this information, any of which could have amaterial adverse effect on our business, financial condition, our reputation, and our relationships with our customers and partners. We also rely on a numberof third-party “cloud-based” service providers of corporate infrastructure services relating to, among other things, human resources, electroniccommunication services and some finance functions, and we are, of necessity, dependent on the security systems of these providers. Any security breaches orother unauthorized access by third parties to the systems of our cloud-based service providers or the existence of computer viruses in their data or softwarecould expose us to a risk of information loss and misappropriation of confidential information. Since the techniques used to obtain unauthorized access or tosabotage systems change frequently and are often not recognized until launched against a target, we may be unable to anticipate these techniques or toimplement adequate preventative measures.32 We are subject to governmental laws, regulations and other legal obligations related to privacy and data protection.The legislative and regulatory framework for privacy and data protection issues worldwide is rapidly evolving and is likely to remain uncertain for theforeseeable future. We collect personally identifiable information (“PII”) and other data as part of our business processes and activities. This data is subject toa variety of U.S. and international laws and regulations, including oversight by various regulatory or other governmental bodies. Many foreign countries andgovernmental bodies, including the European Union and other relevant jurisdictions where we conduct business, have laws and regulations concerning thecollection and use of PII and other data obtained from their residents or by businesses operating within their jurisdictions that are currently more restrictivethan those in the U.S. Additionally, in May 2016, the European Union adopted the General Data Protection Regulation that will impose more stringent dataprotection requirements and will provide for greater penalties for noncompliance beginning in May 2018. While we have developed plans to meet theserequirements, these plans are subject to many variables that could delay or otherwise affect implementation. Any inability, or perceived inability, toadequately address privacy and data protection concerns, even if unfounded, or to comply with applicable laws, regulations, policies, industry standards,contractual obligations or other legal obligations, could result in additional cost and liability to us, damage our reputation and adversely affect our business.We rely on third parties to provide services and technology necessary for the operation of our business. Any failure of one or more of our vendors,suppliers or licensors to provide such services or technology could harm our business.We rely on third-party vendors to provide critical services, including, among other things, services related to accounting, human resources,information technology and network monitoring that we cannot or do not create or provide ourselves. We depend on these vendors to ensure that ourcorporate infrastructure will consistently meet our business requirements. The ability of these third-party vendors to successfully provide reliable and high-quality services is subject to technical and operational uncertainties that are beyond our control. While we may be entitled to damages if our vendors fail toperform under their agreements with us, our agreements with these vendors limit the amount of damages we may receive. In addition, we do not know whetherwe will be able to collect on any award of damages or that these damages would be sufficient to cover the actual costs we would incur as a result of anyvendor’s failure to perform under its agreement with us. Upon expiration or termination of any of our agreements with third-party vendors, we may not be ableto replace the services provided to us in a timely manner or on terms and conditions, including service levels and cost, that are favorable to us, and atransition from one vendor to another vendor could subject us to operational delays and inefficiencies until the transition is complete.Additionally, we incorporate third-party technology into some of our products, and we may do so in future products. The operation of our productscould be impaired if errors occur in the third-party technology we use. It may be more difficult for us to correct any errors in a timely manner, if at all, becausethe development and maintenance of the technology is not within our control. We cannot assure you that these third parties will continue to make theirtechnology, or improvements to the technology, available to us, or that they will continue to support and maintain their technology. Further, due to thelimited number of vendors of some types of technology, it may be difficult to obtain new licenses or replace existing technology. Any impairment of thetechnology of or our relationship with these third parties could harm our business.Failure to comply with the U.S. Foreign Corrupt Practices Act, or FCPA, and similar laws associated with our activities outside of the United Statescould subject us to penalties and other adverse consequences.We face significant risks if we fail to comply with the FCPA and other anti-corruption laws that prohibit improper payments or offers of payment toforeign governments and political parties by us for the purpose of obtaining or retaining business. In many foreign countries, particularly in countries withdeveloping economies, it may be a local custom that businesses operating in such countries engage in business practices that are prohibited by the FCPA orother applicable laws and regulations. Although we implemented an FCPA compliance program, we cannot assure you that all of our employees and agents,as well as those companies to which we outsource certain of our business operations, will not take actions in violation of our policies and applicable law, forwhich we may be ultimately held responsible. Any violation of the FCPA or other applicable anti-corruption laws could result in severe criminal or civilsanctions and, in the case of the FCPA, suspension or debarment from U.S. government contracting, which could have a material and adverse effect on ourreputation, business, financial condition, operating results and cash flows.33 We, our customers and third-party contractors are subject to increasingly complex environmental regulations and compliance with theseregulations may delay or interrupt our operations and adversely affect our business.We face increasing complexity in our procurement, design, and research and development operations as a result of requirements relating to thematerials composition of our products, including the European Union’s, or EU’s, Restriction on the Use of Certain Hazardous Substances in Electrical andElectronic Equipment, or RoHS, directive, which restricts the content of lead and certain other hazardous substances in specified electronic products put onthe market in the EU and similar Chinese legislation relating to marking of electronic products which became effective in March 2007. Failure to complywith these and similar laws and regulations could subject us to fines, penalties, civil or criminal sanctions, contract damage claims, and take-back of non-compliant products, which could harm our business, reputation and operating results. The passage of similar requirements in additional jurisdictions or thetightening of these standards in jurisdictions where our products are already subject to such requirements could cause us to incur significant expenditures tomake our products compliant with new requirements, or could limit the markets into which we may sell our products.Some of our operations, as well as the operations of our contract manufacturers and foundry vendors and other suppliers, are also regulated undervarious other federal, state, local, foreign and international environmental laws and requirements, including those governing, among other matters, themanagement, disposal, handling, use, labeling of, and exposure to hazardous substances, and the discharge of pollutants into the air and water. Liabilityunder environmental laws can be joint and several and without regard to comparative fault. We cannot assure you that violations of these laws will not occurin the future, as a result of human error, accident, equipment failure or other causes. Environmental laws and regulations have increasingly become morestringent over time. We expect that our products and operations will be affected by new environmental requirements on an ongoing basis, which will likelyresult in additional costs, which could adversely affect our business.Our failure to comply with present and future environmental, health and safety laws could cause us to incur substantial costs, result in civil or criminalfines and penalties and decreased revenue, which could adversely affect our operating results. Failure by our foundry vendors or other suppliers to complywith applicable environmental laws and requirements could cause disruptions and delays in our product shipments, which could adversely affect ourrelations with our ODMs and OEMs and adversely affect our business and results of operations.Regulations related to “conflict minerals” may force us to incur additional expenses, may make our supply chain more complex and may result indamage to our reputation with customers.Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the Securities and ExchangeCommission, or the SEC, has adopted requirements for companies that use certain minerals and metals, known as conflict minerals, in their products, whetheror not these products are manufactured by third parties. These requirements require companies to perform due diligence, disclose and report whether or notsuch minerals originate from the Democratic Republic of Congo and adjoining countries. These requirements could adversely affect the sourcing, availabilityand pricing of minerals used in the manufacture of semiconductor devices, including our products. While these requirements continue to be subject toadministrative uncertainty, we have incurred, and will continue to incur, additional costs to comply with the disclosure requirements, including costs relatedto determining the source of any of the relevant minerals and metals used in our products. Since our supply chain is complex, we may not be able tosufficiently verify the origins for these minerals and metals used in our products through the due diligence procedures that we implement, which may harmour reputation. In such event, we may also face difficulties in satisfying customers who require that all of the components of our products are certified asconflict mineral free.We are subject to warranty and product liability claims and to product recalls.From time to time, we are subject to warranty claims that may require us to make significant expenditures to defend these claims or pay damageawards. In the future, we may also be subject to product liability claims resulting from failure of our solutions or if products we design, manufacture, or sell,cause personal injury or property damage, even where the cause is unrelated to product defects. These risks will likely increase as our products are introducedinto new devices, market, or applications, including autonomous and semi-autonomous automotive, UAV and robotic uses. In the event of a warranty claim,we may also incur costs if we compensate the affected customer. We maintain product liability insurance, but this insurance is limited in amount and subjectto significant deductibles. There is no guarantee that our insurance will be available or adequate to protect against all claims. We also may incur costs andexpenses relating to a recall of one of our customers’ products containing one of our devices. The process of identifying a recalled product in consumerdevices that have been widely distributed may be lengthy and require significant resources, and we may incur significant replacement costs, contract damageclaims from our customers and reputational harm. Costs or payments made in connection with warranty and product liability claims and product recalls couldharm our financial condition and results of operations, as well as harm our reputation and cause the market value of our ordinary shares to decline.34 Rapidly changing industry standards could make our video and image processing solutions obsolete, which would cause our operating results tosuffer.We design our video and image processing solutions to conform to video compression standards, including MPEG-2, H.264 and H.265, set byindustry standards setting bodies such as ITU-T Video Coding Experts Group and the ISO/IEC Moving Picture Experts Group. Generally, our solutionscomprise only a part of a camera or broadcast infrastructure equipment device. All components of these devices must uniformly comply with industrystandards in order to operate efficiently together. We depend on companies that provide other components of the devices to support prevailing industrystandards. Many of these companies are significantly larger and more influential in driving industry standards than we are. Some industry standards may notbe widely adopted or implemented uniformly, and competing standards may emerge that may be preferred by our customers or by consumers. If our customersor the suppliers that provide other device components adopt new or competing industry standards with which our solutions are not compatible, or if theindustry groups fail to adopt standards with which our solutions are compatible, our existing solutions would become less desirable to our customers. As aresult, our sales would suffer, and we could be required to make significant expenditures to develop new SoC solutions. For example, if the new H.265 videocompression standard is not broadly adopted by our customers or potential customers, sales of our H.265 compliant solutions would suffer and we may berequired to expend substantial resources to comply with an alternative video compression standard. In addition, existing standards may be challenged asinfringing upon the intellectual property rights of other companies or may be superseded by new innovations or standards.Products for communications applications are based on industry standards that are continually evolving. Our ability to compete in the future willdepend on our ability to identify and ensure compliance with these evolving industry standards, including any new video compression standards. Theemergence of new industry standards could render our solutions incompatible with products developed by other suppliers. As a result, we could be requiredto invest significant time and effort and to incur significant expense to redesign our solutions to ensure compliance with relevant standards. If our solutionsare not in compliance with prevailing industry standards for a significant period of time, we could miss opportunities to achieve crucial design wins, whichcould harm our business.We are subject to the cyclical nature of the semiconductor industry.The semiconductor industry is highly cyclical and is characterized by constant and rapid technological change, rapid product obsolescence, priceerosion, evolving standards, short product life cycles and wide fluctuations in product supply and demand. The industry experienced a significant downturnduring the recent global recession. These downturns have been characterized by diminished product demand, production overcapacity, high inventory levelsand accelerated erosion of average selling prices. Any future downturns could harm our business and operating results. Furthermore, any significant upturn inthe semiconductor industry could result in increased competition for access to third-party foundry and assembly capacity. We are dependent on theavailability of this capacity to manufacture and assemble our SoC solutions. None of our third-party foundry or assembly contractors has provided assurancesthat adequate capacity will be available to us in the future.The use of open source software in our products, processes and technology may expose us to additional risks and compromise our proprietaryintellectual property.Our products, processes and technology sometimes utilize and incorporate software that is subject to an open source license. Open source software istypically freely accessible, usable and modifiable. Certain open source software licenses, such as the GNU General Public License, require a user who intendsto distribute the open source software as a component of the user’s software to disclose publicly part or all of the source code to the user’s software. Inaddition, certain open source software licenses require the user of such software to make any derivative works of the open source code available to others onterms unfavorable to us or at no cost. This can subject previously proprietary software to open source license terms.While we monitor the use of open source software in our products, processes and technology and try to ensure that no open source software is used insuch a way as to require us to disclose the source code to the related product, processes or technology when we do not wish to do so, such use couldinadvertently occur. Additionally, if a third-party software provider has incorporated certain types of open source software into software we license from suchthird-party for our products, processes or technology, we could, under certain circumstances, be required to disclose the source code to our products,processes or technology. This could harm our intellectual property position and our business, results of operations and financial condition.35 Some of our operations and a significant portion of our customers and our subcontractors are located outside of the United States, which subjects usto additional risks, including increased complexity and costs of managing international operations and geopolitical instability.We have research and development design centers and business development offices in China, Japan, Italy, South Korea and Taiwan, and we expect tocontinue to conduct business with companies that are located outside the United States, particularly in Asia. Even customers of ours that are based in theUnited States often use contract manufacturers based in Asia to manufacture their products, and these contract manufacturers typically purchase productsdirectly from us. As a result of our international focus, we face numerous challenges and risks, including: •increased complexity and costs of managing international operations; •longer and more difficult collection of receivables; •difficulties in enforcing contracts generally; •regional economic instability; •geopolitical instability and military conflicts; •limited protection of our intellectual property and other assets; •compliance with local laws and regulations and unanticipated changes in local laws and regulations, including tax laws andregulations; •trade and foreign exchange restrictions and higher tariffs; •travel restrictions; •timing and availability of import and export licenses and other governmental approvals, permits and licenses, including exportclassification requirements; •foreign currency exchange fluctuations relating to our international operating activities; •restrictions imposed by the U.S. government on our ability to do business with certain companies or in certain countries as a result ofinternational political conflicts; •transportation delays and other consequences of limited local infrastructure, and disruptions, such as large scale outages or interruptionsof service from utilities or telecommunications providers; •difficulties in staffing international operations; •heightened risk of terrorist acts; •local business and cultural factors that differ from our normal standards and practices; •differing employment practices and labor relations; •regional health issues and natural disasters; and •work stoppages.Our third-party contractors and their suppliers are concentrated in South Korea, Taiwan and Japan, a region subject to earthquakes and othernatural disasters. Any disruption to the operations of these contractors could cause significant delays in the production or shipment of our products.The majority of our products are manufactured by or receive components from third-party contractors located in South Korea, Taiwan and Japan. Therisk of an earthquake or tsunami in South Korea, Taiwan, Japan and elsewhere in the Pacific Rim region is significant due to the proximity of majorearthquake fault lines. For example, in December 2006 a major earthquake occurred in Taiwan and in March 2011 a major earthquake and tsunami occurredin Japan. Although we are not aware of any significant damage suffered by our third-party contractors as a result of those natural disasters, the occurrence ofadditional earthquakes or other natural disasters could result in the disruption of our foundry vendor or assembly and test capacity. Most recently, adisruption in the availability of image sensors from Sony Corporation as a result of the April 14, 2016 Kumamoto, Japan earthquake impacted our customers’ability to build or launch cameras and, as a result, negatively impacted the timing and scope of demand for our SoCs in the second and third quarters of fiscalyear 2017. Any disruption resulting from such events could cause significant delays in the production or shipment of our products until we are able to shiftour manufacturing, assembling or testing from the affected contractor to another third-party vendor. We may not be able to obtain alternate capacity onfavorable terms, or at all.36 If our operations are interrupted, our business and reputation could suffer.Our operations and those of our manufacturers are vulnerable to interruption caused by technical breakdowns, computer hardware and softwaremalfunctions, software viruses, infrastructure failures, fires, earthquakes, floods, power losses, telecommunications failures, terrorist attacks, wars, Internetfailures and other events beyond our control. Any disruption in our services or operations could result in a reduction in revenue or a claim for substantialdamages against us, regardless of whether we are responsible for that failure. We rely on our computer equipment, database storage facilities and other officeequipment, which are located primarily in the seismically active San Francisco Bay Area and Taiwan. If we suffer a significant database or network facilityoutage, our business could experience disruption until we fully implement our back-up systems.We are subject to regulatory compliance requirements, including Section 404 of the Sarbanes-Oxley Act of 2002, which are costly to comply with,and our failure to comply with these requirements could harm our business and operating results.We are subject to disclosure and compliance requirements associated with being a public company, including but not limited to compliance withSection 404 of the Sarbanes-Oxley Act of 2002. For example, Section 404 of the Sarbanes-Oxley Act requires that our management report on, and ourindependent auditors attest to, the effectiveness of our internal control structure and procedures for financial reporting. Compliance with Section 404 requiresa significant amount of time, expenses and diversion of internal resources. If we or our auditors discover a material weakness in our internal controls, thedisclosure of that fact, even if quickly remedied, could reduce the market’s confidence in our financial statements and harm our stock price. In addition, if wefail to maintain effective controls over financial reporting, we could be subject to sanctions or investigations by The NASDAQ Stock Market, the SEC, orother regulatory authorities. Furthermore, investor perceptions of our company may suffer, and this could cause a decline in the market price of our ordinaryshares. Any inability to provide reliable financial reports or prevent fraud could harm our business. We may not be able to effectively and timely implementnecessary control changes and employee training to ensure continued compliance with the Sarbanes-Oxley Act and other regulatory and reportingrequirements. We cannot assure you that in the future we will be able to continue to fully comply with the requirements of the Sarbanes-Oxley Act or thatmanagement or our auditors will conclude that our internal controls are effective in future periods. Irrespective of compliance with Section 404, any failure ofour internal controls could have a material adverse effect on our stated results of operations and harm our reputation.Changes to financial accounting standards may affect our results of operations and could cause us to change our business practices.We prepare our consolidated financial statements to conform to generally accepted accounting principles, or GAAP, in the United States. Theseaccounting principles are subject to interpretation by the American Institute of Certified Public Accountants, the SEC and various bodies formed to interpretand create accounting rules and regulations. Changes in those accounting rules, including the new revenue recognition guidance and the associated adoptionefforts, which are currently underway, could have a significant effect on our financial results, require significant resources, pose challenges in forecastingrevenue and may affect our reporting of transactions completed before a change is announced. Changes to those rules or the questioning of current practicesmay adversely affect our reported financial results or the way we conduct our business.Currently we recognize revenues for sales to distributors upon sell through by the distributors. Upon the adoption of ASU 606 effective February 1,2018, we will recognize revenue on sales to distributors upon shipment and transfer of control (known as “sell-in” revenue recognition) based on the amountof consideration expected to be received. To the extent that the actual consideration received is materially different from estimated variable considerationused in revenue recognition, we may be required to adjust revenue in subsequent periods.The complexity of calculating our tax provision may result in errors that could result in restatements of our financial statements.We are incorporated in the Cayman Islands and our operations are subject to income and transaction taxes in the United States, China, Hong Kong,Japan, Italy, South Korea, Taiwan and other jurisdictions in which we do business. Due to the complexity associated with the calculation of our tax provision,we have hired independent tax advisors to assist us. If we or our independent tax advisors fail to resolve or fully understand certain issues, there may be errorsthat could result in us having to restate our financial statements. Restatements are generally costly and could adversely impact our results of operations orhave a negative impact on the trading price of our ordinary shares.37 Changes in effective tax rates or adverse outcomes resulting from examination of our income tax returns could adversely affect our results.Our future effective tax rates could be adversely affected if earnings are lower than anticipated in countries where we have lower statutory rates andhigher than anticipated in countries where we have higher statutory rates, by changes in the valuation of our deferred tax assets and liabilities, tax effects ofshare-based compensation, or by changes in tax laws, regulations, accounting principles or interpretations thereof. For example, changes in tax laws,including the recently enacted U.S. federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (Tax Act), as well as other factors,could cause us to experience fluctuations in our tax obligations and effective tax rates and otherwise adversely affect our tax positions and/or our taxliabilities.The Tax Act requires complex computations not previously provided in U.S. tax law. The U.S. Department of Treasury has broad authority to issueregulations and interpretative guidance that may significantly impact how we will apply the law and impact our results of operations in the period issued. Assuch, the application of accounting guidance for such items is currently uncertain. Further, compliance with the Tax Act and the accounting for suchprovisions require accumulation of information not previously required or regularly produced. As a result, we have provided a provisional estimate on theeffect of the Tax Act in our financial statements. As additional regulatory guidance is issued by the applicable taxing authorities, as accounting treatment isclarified, as we perform additional analysis on the application of the law, and as we refine estimates in calculating the effect, our final analysis, which will berecorded in the period completed, may be different from our current provisional amounts, which could materially affect our tax obligations and effective taxrate.In addition, our income tax returns are subject to continuous examination by the Internal Revenue Service, or IRS, and other tax authorities. Weregularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. Wecannot assure you that the outcomes from these continuous examinations will not have an adverse effect on our operating results and financial condition.Unfavorable tax law changes, an unfavorable governmental review of our tax returns, changes in our geographical earnings mix or imposition ofwithholding taxes on repatriated earnings could adversely affect our effective tax rate and our operating results.Our operations are subject to certain taxes, such as income and transaction taxes, in the Cayman Islands, the United States, China, Hong Kong, Japan,Italy, South Korea, Taiwan and other jurisdictions in which we do business. A change in the tax laws in the jurisdictions in which we do business, includingan increase in tax rates or an adverse change in the treatment of an item of income or expense, possibly with retroactive effect, could result in a materialincrease in the amount of taxes we incur. In particular, past proposals have been made to change certain U.S. tax laws relating to foreign entities with U.S.connections, which may include us. For example, previously proposed legislation has considered treating certain foreign corporations as U.S. domesticcorporations (and therefore taxable on all of their worldwide income) if the management and control of the foreign corporation occurs, directly or indirectly,primarily within the United States. If such legislation were enacted, we could, depending on the precise form, be subject to U.S. taxation notwithstanding ourdomicile outside the United States. In addition, on October 5, 2015 the Organization for Economic Co-operation and Development (the “OECD”), whichrepresents a coalition of member countries, released its final reports from the BEPS Action Plans. The final reports include recommendations covering anumber of issues, including country-by-country reporting, permanent establishment rules, transfer pricing rules and tax treaties. These changes, which havebeen or are in the process of being adopted by numerous countries, could increase uncertainties and may adversely affect our provision for income taxes.We are subject to periodic audits or other reviews by tax authorities in the jurisdictions in which we conduct our activities. Any such audit,examination or review requires management’s time, diverts internal resources and, in the event of an unfavorable outcome, may result in additional taxliabilities or other adjustments to our historical results.Because we conduct operations in multiple jurisdictions, our effective tax rate is influenced by the amounts of income and expense attributed to eachsuch jurisdiction. If such amounts were to change so as to increase the amounts of our net income subject to taxation in higher-tax jurisdictions, or if we wereto commence operations in jurisdictions assessing relatively higher tax rates, our effective tax rate could be adversely affected. In addition, we may determinethat it is advisable from time to time to repatriate earnings from subsidiaries under circumstances that could give rise to imposition of potentially significantwithholding taxes by the jurisdictions in which such amounts were earned, without our receiving the benefit of any offsetting tax credits, which could alsoadversely impact our effective tax rate.38 We may be classified as a passive foreign investment company which could result in adverse U.S. federal income tax consequences for U.S. holdersof our ordinary shares.Based on the current and anticipated valuation of our assets and the composition of our income and assets, we do not expect to be considered apassive foreign investment company, or PFIC, for U.S. federal income tax purposes for our 2018 fiscal year or the foreseeable future. However, a separatedetermination must be made at the close of each taxable year as to whether we are a PFIC for that taxable year, and we cannot assure you that we will not be aPFIC for our 2019 fiscal year or any future taxable year. Under current law, a non-U.S. corporation will be considered a PFIC for any taxable year if either(a) at least 75% of its gross income is passive income or (b) at least 50% of the value of its assets, generally based on an average of the quarterly values of theassets during a taxable year, is attributable to assets that produce or are held for the production of passive income. PFIC status depends on the composition ofour assets and income and the value of our assets (which may be based in part on the value of our ordinary shares which may fluctuate), including, amongothers, a pro rata portion of the income and assets of each subsidiary in which we own, directly or indirectly, at least 25% by value of the subsidiary’s equityinterests, from time to time. Because we currently hold, and expect to continue to hold, a substantial amount of cash or cash equivalents, and because thecalculation of the value of our assets may be based in part on the value of our ordinary shares which may fluctuate and may fluctuate considerably given thatmarket prices of technology companies historically often have been volatile, we may be a PFIC for any taxable year. If we were treated as a PFIC for anytaxable year during which a U.S. holder held ordinary shares, certain adverse U.S. federal income tax consequences could apply for such U.S. holder.Changes in our United States federal income tax classification, or that of our subsidiaries, could result in adverse tax consequences to our 10% orgreater U.S. shareholders. The Tax Act signed on December 22, 2017 may have changed the consequences to U.S. shareholders that own, or are considered to own, as a resultof the attribution rules, ten percent or more of the voting power or value of the stock of a non-U.S. corporation (a 10% U.S. shareholder) under the U.S. Federalincome tax law applicable to owners of U.S. controlled foreign corporations (“CFCs”). Prior to the Tax Act, the Company did not believe we, or any of our non-U.S. subsidiaries, were considered a CFC, which is a determination madedaily based on whether the 10% U.S. shareholders together own, or are considered to own as a result of the attribution rules, more than fifty percent of thevoting power or value of a non-U.S. corporation. The Tax Act repealed Internal Revenue Code Section 958(b)(4), which, unless clarified in future regulationsor other guidance, may result in classification of certain of the Company’s foreign subsidiaries as CFCs with respect to any single 10% U.S. shareholder. Thismay be the result without regard to whether 10% U.S. shareholders together own, directly or indirectly, more than fifty percent of the voting power or value ofthe Company as was the case under prior rules. The repeal is effective as of the last taxable year of CFCs beginning before January 1, 2018 and for the taxableyear of 10% U.S. shareholders in which the CFCs' taxable year ends.Fluctuations in exchange rates between and among the currencies of the countries in which we do business may adversely affect our operatingresults.Our sales have been historically denominated in U.S. dollars. An increase in the value of the U.S. dollar relative to the currencies of the countries inwhich our end customers operate could impair the ability of our end customers to cost-effectively integrate our SoCs into their devices which may materiallyaffect the demand for our solutions and cause these end customers to reduce their orders, which would adversely affect our revenue and business. We mayexperience foreign exchange gains or losses due to the volatility of other currencies compared to the U.S. dollar. A significant portion of our solutions aresold to camera manufacturers located outside the United States, primarily in Asia. Sales to customers in Asia accounted for approximately 79%, 73% and 91%of our total revenue in fiscal years 2018, 2017 and 2016, respectively. Certain prior year revenue amounts have been reclassified by geographic region toconform to the fiscal year 2018 presentation. These reclassifications did not impact total revenues in each fiscal year. Because most of our end customers ortheir ODM manufacturers are located in Asia, we anticipate that a majority of our future revenue will continue to come from sales to that region. Although alarge percentage of our sales are made to customers in Asia, we believe that a significant number of the products designed by these customers andincorporating our SoCs are then sold to consumers globally. In addition, if in the future we sell products or purchase inventory in currencies other than theU.S. dollar, our exposure to foreign currency risk could become more significant.A significant number of our employees are located in Asia, principally Taiwan and China. Therefore, a portion of our payroll as well as certain otheroperating expenses are paid in currencies other than the U.S. dollar, such as the New Taiwan Dollar and the Chinese Yuan Renminbi. Our operating results aredenominated in U.S. dollars and the difference in exchange rates in one period compared to another may directly impact period-to-period comparisons of ouroperating results. Furthermore, currency exchange rates, particularly the exchange rates between the Chinese Yuan Renminbi and the U.S. dollar and betweenthe New Taiwan Dollar and the U.S. dollar, have been especially volatile in the recent past and these currency fluctuations may make it difficult for us topredict our operating results.39 We have not implemented any hedging strategies to mitigate risks related to the impact of fluctuations in currency exchange rates. Even if we were toimplement hedging strategies, not every exposure can be hedged and, where hedges are put in place based on expected foreign exchange exposure, they arebased on forecasts which may vary or which may later prove to have been inaccurate. Failure to hedge successfully or anticipate currency risks accuratelycould adversely affect our operating results.We may make acquisitions in the future that could disrupt our business, cause dilution to our shareholders, reduce our financial resources and harmour business.In the future, we may acquire other businesses, products or technologies. Other than our acquisition of VisLab S.r.l., or VisLab, in June 2015, we havenot made any acquisitions to date and do not have any agreements or commitments for any specific acquisition at this time. Our ability to make andsuccessfully integrate acquisitions is unproven. Our acquisition of VisLab and any future acquisitions may not strengthen our competitive position and maybe viewed negatively by our customers, financial markets or investors, and we may not achieve our goals in a timely manner, or at all. In addition, anyacquisitions we make could lead to difficulties in integrating personnel, technologies and operations from the acquired businesses and in retaining andmotivating key personnel from these businesses. Acquisitions may disrupt our ongoing operations, divert management from their primary responsibilities,subject us to additional liabilities, increase our expenses and adversely impact our business, operating results, financial condition and cash flows.Acquisitions may also reduce our cash available for operations and other uses, and could also result in an increase in amortization expense related toidentifiable assets acquired, potentially dilutive issuances of equity securities or the incurrence of debt, any of which could harm our business.We cannot predict our future capital needs, and we may not be able to obtain additional financing to fund our operations.We may need to raise additional funds in the future. Any required additional financing may not be available on terms acceptable to us, or at all. If weraise additional funds by issuing equity securities or convertible debt, investors may experience significant dilution of their ownership interest, and thenewly-issued securities may have rights senior to those of the holders of our ordinary shares. If we raise additional funds by obtaining loans from third parties,the terms of those financing arrangements may include negative covenants or other restrictions on our business that could impair our operational flexibilityand would also require us to incur interest expense. If additional financing is not available when required or is not available on acceptable terms, we mayhave to scale back our operations or limit our production activities, and we may not be able to expand our business, develop or enhance our products, takeadvantage of business opportunities or respond to competitive pressures which could result in lower revenue and reduce the competitiveness of our products.Our marketable securities portfolio could experience a decline in market value, which could materially and adversely affect our financial results.As of January 31, 2018, we had approximately $101.7 million in securities investments. The investments consisted primarily of money market funds,commercial paper, asset-backed securities, U.S. government securities and debt securities of corporations which are focused on the preservation of our capital.We currently do not use derivative financial instruments to adjust our investment portfolio risk or income profile.These investments, as well as any cash deposited in bank accounts, are subject to general credit, liquidity, market and interest rate risks, which may beexacerbated by unusual events, such as the Eurozone crisis and the U.S. debt ceiling crisis, which affected various sectors of the financial markets and led toglobal credit and liquidity issues. If the global credit market continues to experience volatility or deteriorates, our investment portfolio may be impacted andsome or all of our investments may experience other-than-temporary impairment which could adversely impact our financial results and position.40 Risks Related to Ownership of Our Ordinary SharesThe market price of our ordinary shares may be volatile, which could cause the value of your investment to decline.Since our initial public offering in October 2012, the market price of our ordinary shares has been highly volatile. The trading price of our ordinaryshares is likely to remain volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control.These factors include: •changes in financial estimates, including our ability to meet our future revenue and operating profit or loss projections; •fluctuations in our operating results or those of other semiconductor or comparable companies; •fluctuations in the economic performance or market valuations of companies perceived by investors to be comparable to us; •economic developments in the semiconductor industry as a whole; •general economic conditions and slow or negative growth of related markets; •announcements by us or our competitors of acquisitions, new products, significant contracts or orders, commercial relationships orcapital commitments; •our ability to develop and market new and enhanced solutions on a timely basis; •changes in the demand for our customers’ products; •commencement of or our involvement in litigation; •disruption to our operations; •any major change in our board of directors or management; •political or social conditions in the markets where we sell our products; •changes in governmental regulations; and •changes in earnings estimates or recommendations by securities analysts.In addition, the stock market in general, and the market for semiconductor and other technology companies in particular, have experienced extremeprice and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market andindustry factors may cause the market price of our ordinary shares to decrease, regardless of our actual operating performance. These trading price fluctuationsmay also make it more difficult for us to use our ordinary shares as a means to make acquisitions or to use options to purchase our ordinary shares to attractand retain employees. If the market price of our ordinary shares declines, you may not realize any return on your investment in us and may lose some or all ofyour investment. In addition, in the past, following periods of volatility in the overall market and the market price of a company’s securities, securities classaction litigation has often been instituted against these companies. This litigation, if instituted against us, could result in substantial costs and a diversion ofour management’s attention and resources.If securities analysts or industry analysts downgrade our ordinary shares, publish negative research or reports or fail to publish reports about ourbusiness, our stock price and trading volume could decline.The trading market for our ordinary shares will be influenced by the research and reports that industry or securities analysts publish about us, ourbusiness and our market. If one or more analysts adversely changes their recommendation regarding our stock or our competitors’ stock, our stock pricewould likely decline. If one or more analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial marketswhich in turn could cause our stock price or trading volume to decline.41 Our actual operating results may differ significantly from our guidance and investor expectations, which would likely cause our stock price todecline.From time to time, we may release guidance in our earnings releases, earnings conference calls or otherwise, regarding our future performance thatrepresent our management’s estimates as of the date of release. If given, this guidance, which will include forward-looking statements, will be based onprojections prepared by our management. Projections are based upon a number of assumptions and estimates that, while presented with numerical specificity,are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. Theprincipal reason that we expect to release guidance is to provide a basis for our management to discuss our business outlook with analysts and investors. Withor without our guidance, analysts and other investors may publish expectations regarding our business, financial performance and results of operations. Wedo not accept any responsibility for any projections or reports published by any such third persons.Guidance is necessarily speculative in nature, and it can be expected that some or all of the assumptions of the guidance furnished by us will notmaterialize or will vary significantly from actual results. If our actual performance does not meet or exceed our guidance or investor expectations, the tradingprice of our ordinary shares is likely to decline.The price of our ordinary shares could decrease as a result of shares being sold in the market.Sales of a substantial number of our ordinary shares in the public market, or the perception that these sales might occur, could cause the market priceof our ordinary shares to decline. Certain holders of our ordinary shares are entitled to rights with respect to registration of such shares under the SecuritiesAct of 1933, as amended, or the Securities Act, pursuant to a registration rights agreement between such holders and us. If such holders, by exercising theirregistration rights, sell a large number of shares, the market price for our ordinary shares could be adversely affected. If we file a registration statement for thepurpose of selling additional shares to raise capital and are required to include shares held by these holders pursuant to the exercise of their registrationrights, our ability to raise capital may be impaired.We filed registration statements on Form S-8 under the Securities Act to register shares for issuance under our 2004 Stock Plan, 2012 Equity IncentivePlan and the Amended and Restated 2012 Employee Stock Purchase Plan. Our 2012 Equity Incentive Plan and the Amended and Restated 2012 EmployeeStock Purchase Plan provide for automatic increases in the shares reserved for issuance under these plans which could result in additional dilution to ourshareholders. These shares can be freely sold in the public market upon issuance and vesting, subject to restrictions provided under the terms of theapplicable plan and/or the option agreements entered into with option holders.We may also issue ordinary shares or securities convertible into ordinary shares from time to time in connection with a financing, acquisition orotherwise. Any such issuance could result in substantial dilution to our existing shareholders and cause the trading price of our stock to decline.We do not intend to pay dividends on our ordinary shares and, consequently, a shareholder’s ability to achieve a return on its investment willdepend on appreciation in the price of our ordinary shares.We have never declared or paid any cash dividends on our ordinary shares and do not currently intend to do so for the foreseeable future. We currentlyintend to invest our future earnings, if any, to fund our growth. Therefore, shareholders are not likely to receive any dividends on their ordinary shares for theforeseeable future and the success of an investment in our ordinary shares will depend upon any future appreciation in their value. There is no guarantee thatour ordinary shares will appreciate in value or even maintain the price at which our shareholders have purchased their shares. Investors seeking cashdividends should not purchase our ordinary shares.42 Provisions of our memorandum and articles of association and Cayman Islands corporate law may discourage or prevent an acquisition of uswhich could adversely affect the value of our ordinary shares.Provisions of our memorandum and articles of association and Cayman Islands law may have the effect of delaying or preventing a change of controlor changes in our management. These provisions include the following: •the division of our board of directors into three classes; •the right of our board of directors to elect a director to fill a vacancy created by the expansion of our board of directors or due to theresignation or departure of an existing board member; •prohibition of cumulative voting in the election of directors which would otherwise allow less than a majority of shareholders to electdirector candidates; •the requirement for the advance notice of nominations for election to our board of directors or for proposing matters that can be actedupon at a shareholders’ meeting; •the ability of our board of directors to issue, without shareholder approval, such amounts of preference shares as the board of directorsdeems necessary and appropriate with terms set by our board of directors, which rights could be senior to those of our ordinary shares; •the elimination of the rights of shareholders to call a special meeting of shareholders and to take action by written consent in lieu of ameeting; and •the required approval of a special resolution of the shareholders, being a two-thirds vote of shares held by shareholders present andvoting at a shareholder meeting, to alter or amend the provisions of our post-offering memorandum and articles of association.Holders of our ordinary shares may face difficulties in protecting their interests because we are incorporated under Cayman Islands law.Our corporate affairs are governed by our amended and restated memorandum and articles of association, by the Companies Law (as the same may besupplemented or amended from time to time) of the Cayman Islands and by the common law of the Cayman Islands. The rights of our shareholders and thefiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as under statutes or judicial precedent in existence injurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States and providessignificantly less protection to investors. There is no legislation specifically dedicated to the rights of investors in securities and thus no statutorily definedprivate cause of action specific to investors such as those provided under the Securities Act or the Securities Exchange Act of 1934, as amended. In addition,shareholders of Cayman Islands companies may not have standing to initiate shareholder derivative actions in U.S. federal courts. Therefore, you may havemore difficulty in protecting your interests in the face of actions by our management, directors or controlling shareholders than would shareholders of acorporation incorporated in a jurisdiction in the United States due to the comparatively less developed nature of Cayman Islands law in this area.Shareholders of Cayman Islands exempted companies, such as our company, have no general rights under Cayman Islands law to inspect corporaterecords and accounts or to obtain copies of lists of shareholders of the company. Our directors have discretion under our articles of association to determinewhether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to ourshareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicitproxies from other shareholders in connection with a proxy contest.Subject to limited exceptions, under Cayman Islands law, a minority shareholder may not bring a derivative action against the board of directors.43 Holders of our ordinary shares may have difficulty obtaining or enforcing a judgment against us because we are incorporated under the laws of theCayman Islands.It may be difficult or impossible for you to bring an action against us in the Cayman Islands if you believe your rights have been infringed under U.S.securities laws. There is no statutory recognition in the Cayman Islands of judgments obtained in the United States, although the courts of the CaymanIslands will in certain circumstances recognize and enforce a non-penal judgment of a foreign court of competent jurisdiction without retrial on the merits.While there is no binding authority on this point, this is likely to include, in certain circumstances, a non-penal judgment of a United States court imposing amonetary award based on the civil liability provisions of the U.S. federal securities laws. The Grand Court of the Cayman Islands may stay proceedings ifconcurrent proceedings are being brought elsewhere. There is uncertainty as to whether the Grand Court of the Cayman Islands would recognize or enforcejudgments of United States courts obtained against us predicated upon the civil liability provisions of the securities laws of the United States or any statethereof and whether the Grand Court of the Cayman Islands would hear original actions brought in the Cayman Islands against us predicated upon thesecurities laws of the United States or any state thereof. ITEM 1B.UNRESOLVED STAFF COMMENTSNone. ITEM 2.PROPERTIESOur principal executive offices are located in Santa Clara, California, consisting of approximately 49,000 square feet of office space under a lease thatexpires in May 2020. This facility accommodates our principal sales, marketing, research and development, finance, and administration activities. We leaseapproximately 89,000 square feet of office spaces in Hsinchu, Taiwan under lease agreements that expire in December 2018, May 2020 and January 2028,respectively. The Taiwan facilities accommodate research and development, business development, operations, and administration support. We leaseapproximately 35,000 square feet of office space in Shanghai and Shenzhen, China, under leases that expire in November 2019 and September 2018,respectively, to support research and business development. We lease approximately 12,100 square feet of facilities in Italy for research and development. Welease additional facilities in Hong Kong for sales and inventory warehousing and in Japan and South Korea for our local business development personnel.We believe that our existing facilities are well maintained and in good operating condition, and are sufficient for our needs for the foreseeable future.The following table lists our major locations and primary usage as of January 31, 2018: Approximate Square Major Locations Footage UsageUnited States: Santa Clara, California 49,000 Corporate Headquarters; Sales; Marketing; Research and Development; Finance; AdministrationAsia Pacific: Hsinchu, Taiwan 89,000 Research and Development; Business Development; Operations; AdministrationShanghai, China 16,000 Research and Development; Business DevelopmentShenzhen, China 19,000 Research and Development; Business DevelopmentKowloon, Hong Kong 9,000 Sales; WarehousingShin-Yokohama, Japan 1,300 Business DevelopmentSeongNam, South Korea 1,500 Business Development Europe: Parma, Italy 12,100 Research and Development ITEM 3.LEGAL PROCEEDINGSWe are not engaged in any material legal proceedings at this time.ITEM 4.MINE SAFETY DISCLOSURESNot applicable. 44 PART IIITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESPrice Range of Ordinary SharesOur ordinary shares have been traded on the NASDAQ Global Market under the symbol “AMBA” since October 10, 2012. Prior to that date, there wasno public trading market for our ordinary shares. The following table sets forth, for the periods indicated, the high and low sales prices per ordinary share asreported by the NASDAQ Global Market: Price Range High Low Year Ended January 31, 2018: Fourth Quarter $66.23 $46.75 Third Quarter $56.61 $40.06 Second Quarter $65.39 $47.34 First Quarter $60.68 $49.18 Year Ended January 31, 2017: Fourth Quarter $65.78 $46.80 Third Quarter $74.95 $55.75 Second Quarter $59.87 $35.26 First Quarter $47.44 $33.39 On March 16, 2018, there were 34 shareholders of record holding our ordinary shares. We cannot estimate the number of beneficial owners since manybrokers and other institutions hold our shares on behalf of shareholders. On March 16, 2018, the last reported sale price of our stock was $54.24 per ordinaryshare as reported by the NASDAQ Global Market.We have never declared or paid any cash dividends on our ordinary shares and do not currently intend to do so in the foreseeable future.Performance GraphThis performance graph shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the Securities andExchange Commission, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, except as shall beexpressly set forth by specific reference in such filing.45 The following graph shows a comparison from February 1, 2013 through January 31, 2018 of the cumulative total return for our ordinary shares, theNASDAQ Composite Index and the Philadelphia Semiconductor Index. The comparisons in the graph are historical and are not intended to forecast or beindicative of possible future performance of our ordinary shares.Comparison of 5 year Cumulative Total Return Purchases of Equity Securities by the Issuer and Recent Sales of Unregistered Securities The following table displays information with respect to repurchases of the Company’s ordinary shares during the three months ended January 31,2018: Approximate Total Number Dollar Value Of Of Shares Shares That May Purchased As Yet Be Purchased Part of Publicly Under The Plans Total Number Average Price Announced Or Programs Of Shares Paid Per Share Plans Or (in millions) Period Purchased (i) (ii) Programs (i) (i) November 1, 2017 to November 30, 2017 — $ — — December 1, 2017 to December 31, 2017 — — — January 1, 2018 to January 31, 2018 66,747 49.18 66,747 Total 66,747 $49.18 66,747 $31.7 (i)On May 31, 2016, our Board of Directors approved a stock repurchase program that authorized us to repurchase up to $75.0 million in theaggregate of our ordinary shares over a six-month period. On November 29, 2016, our Board of Directors extended the duration of therepurchase program until June 30, 2017. On May 31, 2017, our Board of Directors authorized the repurchase of up to an additional $50.0million of our ordinary shares over a twelve-month period commencing July 1, 2017. The repurchase program does not obligate us to acquireany particular amount of ordinary shares, and it may be suspended at any time at our discretion. Shares may be repurchased through openmarket purchases, 10b5-1 plans or privately negotiated transactions. Repurchases are funded using our working capital and any repurchasedshares are recorded as authorized but unissued shares. As of January 31, 2018, we had repurchased an aggregate amount of $75.0 million ofour ordinary shares, and we had approximately $31.7 million available to repurchase shares under the program through June 30, 2018. 46 (ii)The average price paid per share is calculated by total cash utilized (excluding commission) divided by total shares repurchased during theperiod. 47 ITEM 6.SELECTED FINANCIAL DATAThe following table sets forth selected financial data as of and for the last five fiscal years, and should be read in conjunction with Item 7,“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 8, “Financial Statements and Supplementary Data,”and other financial data included elsewhere in this report. Our historical results of operations are not necessarily indicative of results of operations to beexpected for any future period.Selected Consolidated Statements of Operations Data: Year Ended January 31, 2018 2017 2016 2015 2014 (in thousands, except per share data) Revenue $295,402 $310,297 $316,373 $218,278 $157,608 Income from operations $24,431 $60,363 $84,679 $51,861 $27,917 Net income $18,852 $57,810 $76,508 $50,571 $25,654 Net income per share attributable to ordinary shareholders: Basic $0.57 $1.77 $2.42 $1.70 $0.93 Diluted $0.55 $1.68 $2.27 $1.57 $0.85 Selected Consolidated Balance Sheet Data: As of January 31, 2018 2017 2016 2015 2014 (in thousands) Cash, cash equivalents and marketable securities $434,591 $405,394 $307,893 $207,994 $143,394 Working capital 440,047 414,139 320,828 229,889 151,834 Total assets 546,649 512,271 410,615 284,284 183,307 Total liabilities 64,462 57,637 61,159 47,073 26,946 Total shareholders' equity 482,187 454,634 349,456 237,211 156,361 On June 25, 2015, we completed the acquisition of VisLab S.r.l., for $30.0 million in cash. Of this total purchase price, $4.1 million was attributed tointangible assets, $25.3 million was attributed to goodwill, and $0.6 million was attributed to net assets acquired. A deferred tax liability of $1.3 millionrelated to the intangible assets was recorded to account for the difference between financial reporting and tax basis at the acquisition date, with an addition togoodwill.In November 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-17, Balance SheetClassification of Deferred Taxes. To simplify the presentation, the new guidance requires that all deferred tax assets and liabilities, along with any relatedvaluation allowance, be classified as noncurrent on the balance sheet. We adopted this standard in the fourth quarter of fiscal year 2016 on a prospectivebasis. The adoption of this new guidance resulted in all deferred tax assets and liabilities being classified as noncurrent in the consolidated balance sheets asof January 31, 2016. The prior periods were not restated for this presentation standard.Upon adoption of Accounting Standards Update No. 2015-05, Intangible - Goodwill and Other - Internal-Use Software (Subtopic 350-40), we accountfor a noncancelable on premise internal-use software license as the acquisition of an intangible asset and the incurrence of a liability to the extent that all or aportion of the software licensing fees are not paid on or before the license acquisition date. The intangible asset and related liability are recorded at netpresent value and interest expense is recorded over the payment term. As of January 31, 2018, there were $10.3 million of intangible assets, net ofamortization expense, $4.3 million of current liabilities and $4.5 million of noncurrent liabilities related to these noncancelable internal-use softwarelicenses recorded in the consolidated balance sheets. 48 ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSOverviewWe are a leading developer of semiconductor processing solutions for video that enable high-definition, or HD, video capture, analysis, sharing, anddisplay. A device that captures video includes four primary components: a lens, an image sensor, a video processor and storage memory. The video processorconverts raw video input into a format that can be stored, analyzed and distributed efficiently and, in some cases, analyzes the video data to automateprocesses. We combine our processor design capabilities with our expertise in video, image processing and computer vision algorithms and software toprovide a technology platform that is designed to be easily scalable across multiple applications and enable rapid and efficient product development. Oursystem-on-a-chip, or SoC, designs fully integrate HD video processing, image processing and analysis, audio processing and system functions onto a singlechip, delivering exceptional video and image quality, differentiated functionality and low power consumption.We sell our solutions to leading original design manufacturers, or ODMs, and original equipment manufacturers, or OEMs, globally. We refer to ODMsas our customers and OEMs as our end customers, except as otherwise indicated or as the context otherwise requires. In the camera market, our solutionsenable the creation of high-quality video content in wearable cameras, automotive cameras, Internet Protocol, or IP, security cameras, for both professionaluse and home security and monitoring, unmanned aerial vehicle cameras, also referred to as UAVs or drones, and virtual reality cameras, also referred to as360° cameras. In the infrastructure market, our solutions efficiently manage IP video traffic, broadcast encoding, transcoding and IP video deliveryapplications. We are also developing solutions to address emerging markets, such as OEM automotive advanced driving assistance systems and roboticsmarkets.Our sales cycles typically require a significant investment of time and a substantial expenditure of resources before we can realize revenue from thesale of our solutions, if any. Our typical sales cycle consists of a multi-month sales and development process involving our customers’ system designers andmanagement along with our sales personnel and software engineers. If successful, this process culminates in a customer’s decision to use our solutions in itssystem, which we refer to as a design win. Our sales efforts are typically directed to the OEM of the product that will incorporate our video and imageprocessing solution, but the eventual design and incorporation of our SoC into the product may be handled by an ODM on behalf of the OEM. Volumeproduction may begin within six to 18 months after a design win, depending on the complexity of our customer’s product and other factors upon which wemay have little or no influence. Once one of our solutions has been incorporated into a customer’s design, we believe that our solution is likely to remain acomponent of the customer’s product for its life cycle because of the time and expense associated with redesigning a product or substituting an alternativesolution. Conversely, a design loss to a competitor will likely preclude any opportunity for us to generate future revenue from such customer’s product. Evenif we obtain a design win and our SoC remains a component through the life cycle of a customer’s product, the volume and timing of actual sales of our SoCsto the customer depend upon the production, release and market acceptance of that product, none of which are within our control. A portable consumerdevice typically has a product life cycle of six to 18 months.Fiscal Year 2018 Financial Highlights and Trends •We recorded revenue of $295.4 million in fiscal year 2018, a decrease of 4.8% as compared to fiscal year 2017. The decrease in revenue wasprimarily due to our major customer in the sports camera market, GoPro, Inc., or GoPro, incorporating a competing solution into one of itsrecently released mainstream camera models that significantly reduced our sales to GoPro in fiscal year 2018. Compared to fiscal year 2017,revenue from GoPro declined by 50.3% from $74.9 million in fiscal year 2017 to $37.2 million in fiscal year 2018. We believe our revenuefrom GoPro will continue to decline over the foreseeable future. The decrease was also attributable to a decline in revenues from DajiangInnovation Technology Inc., or DJI, in the drone market as the customer’s product mix shifted to non-Ambarella based drones, as well ascontinued weakness from smaller consumer drone customers. The declined revenues in sports camera and drone markets were partially offset bystrong revenue growth in the IP security, automotive and non-sports wearable camera markets. Revenue growth in the IP security camera marketwas primarily due to solid performance in the home security and monitoring camera market. In the automotive camera market, an increase inshipments of OEM automotive video recorders plus growth in shipments for the automotive aftermarket resulted in strong revenue growth inthat market in fiscal year 2018. •We recorded operating income of $24.4 million, a decrease of 59.5% as compared to fiscal year 2017, primarily due to a decrease in grossmargin, increased stock-based compensation expense, and increased research and development costs. The increase in research and developmentcosts was primarily the result of increased headcount and costs associated with new SoC development and research and development efforts inthe area of computer vision technology, principally for applications in the automotive market.49 •We generated cash flows from operating activities of $85.4 million in fiscal year 2018, as compared to $113.3 million in fiscal year 2017. Thedecreased cash flows from operating activities were primarily due to decreased net income as a result of decreased revenue and increasedoperating expenses adjusted for increased non-cash stock-based compensation expense. The decrease in cash flows from operating activitiesalso was attributable to decreased liabilities associated with the timing of payments to suppliers and decreased deferred revenue. The decreasewas partially offset by increased cash receipts associated with the timing of payments from our customers. •Our Board of Directors previously authorized a program to repurchase up to $75.0 million of our ordinary shares through June 30, 2017. OnMay 31, 2017, our Board of Directors authorized the repurchase of up to an additional $50.0 million of our ordinary shares over a twelve-month period commencing July 1, 2017. During the twelve months ended January 31, 2018, we repurchased 1,094,795 shares forapproximately $54.8 million in cash. As of January 31, 2018, we had repurchased a total of 1,499,884 shares for approximately $75.0 millionin cash. Repurchases are funded using working capital and any repurchased shares are recorded as authorized but unissued shares. As of January31, 2018, approximately $31.7 million remained available for repurchases under the repurchase program through June 30, 2018.Factors Affecting Our PerformanceDesign Wins. We closely monitor design wins by customer and end market. We consider design wins to be critical to our future success, although adesign win may not successfully materialize into revenue, and even if they result in revenue, the amount generated by each design win can vary significantly.Our long-term sales expectations are based on forecasts from customers and internal estimations of customer demand factoring in the expected time to marketfor end customer products incorporating our solutions and associated revenue potential. Our ability to accurately forecast demand, however, can be adverselyaffected by a number of factors, including inaccurate forecasting by our customers, miscalculations by our customers of their inventory requirements, changesin market conditions, adverse changes in our product order mix and fluctuating demand for our customers’ products.Pricing, Product Cost and Margin. Our pricing and margins depend on the volumes and the features of the solutions we provide to our customers.Additionally, we make significant investments in new solutions for both cost improvements and new features that we expect to drive revenue and maintainmargins. In general, solutions incorporated into more complex configurations, such as those used in high-performance camera or infrastructure applications,have higher prices and higher gross margins as compared to solutions sold into lower performing, more competitive camera applications. Our average sellingprice, can vary by market and application due to market-specific supply and demand, the maturation of products launched in previous years and the launch ofnew products.We continually monitor the cost of our solutions. As we rely on third-party manufacturers for the production of our products, we maintain a closerelationship with these suppliers to continually monitor production yields, component costs and design efficiencies.Shifting Consumer Preferences. Our revenue is subject to consumer preferences, regarding form factor and functionality, and how those preferencesimpact the video and image capture electronics that we support. For example, improved smartphone video capture capabilities, and the rapid adoption ofsmartphones by consumers, led to the decline of pocket video cameras aimed at the video and image capture market. The current video and image capturemarket is now characterized by a greater volume of more specialized video and image capture devices that are less likely to be replaced with smartphones,such as wearable, IP security, UAV and automotive cameras. This increasing specialization of video capture devices has changed our customer base and endmarkets and has impacted our revenue. In the future, we expect further changes in the market to continue to impact our business performance.Continued Concentration of Revenue by End Market. Historically, our revenue has been significantly concentrated in a small number of end markets.In fiscal year 2010, the majority of our revenue came from the pocket video, camcorder and infrastructure markets. Since that time, we have developedtechnologies to provide solutions for new markets as they emerged, such as the wearable, IP security, UAV and automotive camera markets. Since fiscal year2013, the wearable sports and professional IP security markets have been our largest end markets and sales into these markets collectively generated themajority of our revenue. We believe, however, that expansion into new markets is required to facilitate revenue growth and customer diversification. Whilewe will continue to expand our end market exposure, such as to home security and monitoring cameras, non-sports wearable cameras, UAVs, automotive andvirtual reality cameras, we anticipate that sales to a limited number of end markets will continue to account for a significant percentage of our total revenuefor the foreseeable future. Our end market concentration may cause our financial performance to fluctuate significantly from period to period based on thesuccess or failure of products that our SoCs are designed into as well as the overall growth or decline in the video capture markets in which we compete. Inaddition, we derive a significant portion of our revenue from a limited number of ODMs who build products on behalf of a limited number of OEMs and froma limited number of OEMs to whom we ship directly. We believe that our operating results for the foreseeable future will continue to depend on sales to arelatively small number of customers.50 Ability to Capitalize on Connectivity Trends. Mobile connected devices are ubiquitous today and play an increasingly prominent role in consumers’lives. The constant connectivity provided by these devices has created a demand for connected electronic peripherals such as video and image capturedevices. Our ability to capitalize on these trends by supporting our end customers in the development of connected peripherals that seamlessly cooperatewith other connected devices and allow consumers to distribute and share video and images with online media platforms is critical for our success. We haveadded wireless communication functionality into our solutions for wearable, IP security, UAV and automotive cameras. The combination of our compressiontechnology with wireless connectivity enables wireless video streaming and uploading of videos and images to the Internet. Our solutions enable IP securitycamera systems to stream video content to either cloud infrastructure or connected mobile devices, and our solutions for wearable and UAV cameras allowconsumers to quickly stream or upload video and images to social media platforms.Ability to Capitalize on Computer Vision Trends. We expect that computer vision functionality will become an increasingly important requirement inmany of our current and future markets, including IP security, wearable, UAV, automotive and robotics markets. As a result, we believe that our ability todevelop advanced computer vision technology, enable and support customer product development in emerging applications such as advanced driver-assistance systems, object detection, people recognition and machine learning, and gain customer acceptance of our technology platform and solutions, willbe critical to our future success.Sales Volume. A typical camera design win that successfully launches into the marketplace can generate a wide range of sales volumes for oursolutions, depending on the end market demand for our customers’ products. This can depend on several factors, including the reputation of the endcustomer, market penetration, product capabilities, size of the end market that the product addresses and our end customers’ ability to sell their products. Incertain cases, we may provide volume discounts on sales of our solutions, which may be offset by lower manufacturing costs related to higher volumes. Ingeneral, our customers with greater market penetration and better branding tend to develop products that generate larger volumes over the product life cycle.Customer Product Life Cycle. We estimate our customers’ product life cycles based on the customer, type of product and end market. In general,products launched in the camera market have shorter life cycles than those sold into the infrastructure market. We typically commence commercial shipmentsfrom six to 18 months following a design win; however, in some markets, more lengthy product and development cycles are possible, depending on the scopeand nature of the project. A portable consumer device typically has a product life cycle of six to 18 months. In the infrastructure market, the product life cyclecan range from 24 to 60 months.Results of OperationsThe following table sets forth our historical operating results for the periods indicated: Year Ended January 31, 2018 2017 2016 (dollars in thousands) Revenue $295,402 $310,297 $316,373 Cost of revenue 107,669 105,283 111,029 Gross profit 187,733 205,014 205,344 Operating expenses: Research and development 115,510 101,205 82,927 Selling, general and administrative 47,792 43,446 37,738 Total operating expenses 163,302 144,651 120,665 Income from operations 24,431 60,363 84,679 Other income, net 1,298 518 530 Income before income taxes 25,729 60,881 85,209 Provision for income taxes 6,877 3,071 8,701 Net income $18,852 $57,810 $76,508 51 The following table sets forth our historical operating results as a percentage of revenue of each line item for the periods indicated: Year Ended January 31, 2018 2017 2016 Revenue 100% 100% 100%Cost of revenue 36 34 35 Gross profit 64 66 65 Operating expenses: Research and development 39 33 26 Selling, general and administrative 16 14 12 Total operating expenses 55 47 38 Income from operations 9 19 27 Other income, net — — — Income before income taxes 9 19 27 Provision for income taxes 2 1 3 Net income 7% 18% 24% RevenueWe derive substantially all of our revenue from the sale of HD and Ultra HD video and image processing SoC solutions to OEMs and ODMs, eitherdirectly or through our distributors. Our SoC solutions have been used in the camera and infrastructure markets, although we expect the camera market will bethe primary market for our solutions for the foreseeable future as the infrastructure market continues to decline due to delays in investments in networkupgrades. We derive a substantial portion of our revenue from sales made indirectly through our distributor, Wintech Microelectronics Co., Ltd., or Wintech,and directly to one OEM customer, GoPro.We typically experience seasonal fluctuations in our quarterly revenue with our third fiscal quarter normally being the highest revenue quarter. Thisfluctuation has been driven primarily by increased sales in consumer camera markets as our customers build inventories in preparation for the holidayshopping season. More generally, our average selling prices fluctuate based on the mix of our solutions sold in a period which reflects the impact of bothchanges in unit sales of existing solutions as well as the introduction and sales of new solutions. Our solutions are typically characterized by a life cycle thatbegins with higher average selling prices and lower volumes, followed by broader market adoption, higher volumes and average selling prices that are lowerthan initial levels.The end markets into which we sell our products have seen significant changes as consumer preferences have evolved in response to newtechnologies. As a result, the composition of our revenue may differ meaningfully during periods of technology or consumer preference changes. We expectshifts in consumer use of video capture to continue to change over time, as more specialized use cases emerge and video capture continues to proliferate.Cost of Revenue and Gross MarginCost of revenue includes the cost of materials such as wafers processed by third-party foundries, costs associated with packaging, assembly andtesting, and our manufacturing support operations such as logistics, planning and quality assurance. Cost of revenue also includes indirect costs such aswarranty, inventory valuation reserves and other general overhead costs.We expect that our gross margin may fluctuate from period to period as a result of changes in average selling price, product mix and the introductionof new products by us or our competitors. In general, solutions incorporated into more complex configurations, such as those used in high-performancecameras or infrastructure applications, have higher prices and higher gross margins, as compared to solutions sold into the lower performance, morecompetitive camera applications. As semiconductor products mature and unit volumes sold to customers increase, their average selling prices typicallydecline. These declines may be paired with improvements in manufacturing yields and lower wafer, packaging and test costs, which offset some of the marginreduction that could result from lower selling prices. We believe that our gross margin will decline in the future as we continue to penetrate the highlycompetitive camera market.52 Research and DevelopmentResearch and development expense consists primarily of personnel costs, including salaries, stock-based compensation and employee benefits. Theexpense also includes costs of development incurred in connection with our collaborations with our foundry vendors, costs of licensing intellectual propertyfrom third parties for product development, costs of development for software and hardware tools, cost of fabrication of mask sets for prototype products, andallocated depreciation and facility expenses. All research and development costs are expensed as incurred. We expect our research and development expenseto increase in absolute dollars as we continue to enhance and expand our product features and offerings and increase headcount for new SoC developmentand development of computer vision technology, especially for the automotive market.Selling, General and AdministrativeSelling, general and administrative expense consists primarily of personnel costs, including salaries, stock-based compensation and employee benefitsfor our sales, marketing, finance, human resources, information technology and administrative personnel. The expense also includes professional servicecosts related to accounting, tax, legal services, and allocated depreciation and facility expenses. We expect our selling, general and administrative expense toincrease in absolute dollars as we continue to maintain the infrastructure and expand the size of our sales and marketing organization to support ouranticipated business growth.Other Income, NetOther income consists primarily of interest income from deposits with financial institutions, interest income from investments in debt securities, net ofinterest expense incurred for intangible assets purchased and gains and losses from foreign currency transactions and remeasurements.Provision for Income TaxesWe are incorporated and domiciled in the Cayman Islands and also conduct business in several countries such as the United States, China, Taiwan,Hong Kong, Italy, South Korea and Japan, and we are subject to taxation in those jurisdictions. The primary jurisdiction where our foreign earnings arederived is the Cayman Islands, which is a non-taxing jurisdiction. The Company currently does not operate under any tax holidays in any jurisdiction. Ourworldwide operating income is subject to varying tax rates and our effective tax rate is highly dependent upon the geographic distribution of our earnings orlosses and the tax laws and regulations in each geographical region. It is also subject to fluctuation from changes in the valuation of our deferred tax assetsand liabilities; tax benefits from excess stock-based compensation deductions; transfer pricing adjustments and the tax effects of nondeductiblecompensation. We have historically had lower effective tax rates as a substantial percentage of our operations are conducted in lower-tax jurisdictions. If ouroperational structure was to change in such a manner that would increase the amount of operating income subject to taxation in higher-tax jurisdictions, or ifwe were to commence operations in jurisdictions assessing relatively higher tax rates, our effective tax rate could fluctuate significantly on a quarterly basisand/or be adversely affected.Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Although we believe ourreserves are reasonable, no assurance can be given that the final tax outcome of these matters will not be different from that which is reflected in our historicalprovision for income taxes and accruals. We adjust these reserves in light of changing facts and circumstances, such as the closing of a tax audit or therefinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact theprovision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of uncertain tax positionreserves and changes to reserves that are considered appropriate, as well as the related net interest and penalties.Significant judgment is also required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuationallowance, we consider all available evidence, including past operating results, estimates of future taxable income, and the feasibility of tax planningstrategies. In the event that we change our determination as to the amount of deferred tax assets that can be realized, we will adjust our valuation allowancewith a corresponding impact to the provision for income taxes in the period in which such determination is made.On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law in the United States. The new tax legislation makes changes to the corporatetax rate, business-related deductions and taxation of foreign earnings, among others, that are generally effective for taxable years beginning after December31, 2017. We continue to evaluate the impacts of the legislation, as well as its applications to our business operations. Refer to Note 13, “Income Taxes”, ofNotes to Consolidated Financial statements included in this report for details of our evaluation.53 Comparison of the Fiscal Years Ended January 31, 2018, 2017 and 2016Revenue Change Year Ended January 31, 2018 2017 2018 2017 2016 Amount % Amount % (dollars in thousands) Revenue $295,402 $310,297 $316,373 $(14,895) (4.8)% $(6,076) (1.9)% Revenue decreased for fiscal year 2018 compared to fiscal year 2017 primarily due to our major customer in the sports camera market, GoPro,incorporating a competing solution into one of its recently released mainstream camera models that significantly reduced our sales to GoPro in fiscal year2018. Compared to fiscal year 2017, revenue from GoPro declined by 50.3% from $74.9 million in fiscal year 2017 to $37.2 million in fiscal year 2018. Webelieve our revenue from GoPro will continue to decline over the foreseeable future. The decrease was also attributable to a decline in revenues from DJI inthe drone market as the customer’s product mix shifted to non-Ambarella based drones, as well as continued weakness from smaller consumer dronecustomers. The declined revenues in sports camera and drone markets were partially offset by strong revenue growth in the IP security, automotive and non-sports wearable camera markets. Revenue growth in the IP security camera market was primarily due to solid performance in the home security andmonitoring camera market. In the automotive camera market, an increase in shipments of OEM automotive video recorders plus growth in shipments for theautomotive aftermarket resulted in strong revenue growth in that market in fiscal year 2018. In fiscal year 2018, infrastructure revenue continued to declinedas a percentage of total revenue from 2.4% in fiscal year 2017 to 1.6% in fiscal year 2018 due to continued weak market conditions in the United States andEurope as investment in network upgrades to the new H.265 video compression technology is delayed. Revenue decreased for fiscal year 2017 compared to fiscal year 2016 primarily due to significant revenue decline in the wearable sports camera marketin the first half of fiscal year 2017. The decreased revenue from the wearable sports camera market was partially offset by strong growth in the home securityand monitoring, drone and the non-sports wearable markets in fiscal year 2017. In the professional IP security market, we experienced a decline in revenue infiscal year 2017, predominantly from customers located in the China region. Although revenue from the automotive aftermarket, which is dominated bydemand from Asia, was down from fiscal year 2016 due to declining business from China, revenue from recording systems installed as original equipment inautomobiles helped offset the decline. In fiscal year 2017, infrastructure revenue declined as a percentage of total revenue from 3.0% in fiscal year 2016 to2.4% in fiscal year 2017.Cost of Revenue and Gross Margin Change Year Ended January 31, 2018 2017 2018 2017 2016 Amount % Amount % (dollars in thousands) Cost of revenue $107,669 $105,283 $111,029 $2,386 2.3% $(5,746) (5.2)%Gross profit 187,733 205,014 205,344 (17,281) (8.4)% (330) (0.2)%Gross margin 63.6% 66.1% 64.9% — (2.5)% — 1.2% Cost of revenue increased for fiscal year 2018 compared to fiscal year 2017 primarily due to an increase in the number of SoC shipments, though atlower gross margins. The increase was also attributable to approximately $2.9 million of cost benefit received in fiscal year 2017 from the recovery and saleof previously written down inventory that did not recur in fiscal year 2018. Cost of revenue decreased for fiscal year 2017 compared to fiscal year 2016 primarily due to decreased revenue. The decrease was also attributable tocost reductions received from suppliers for certain SoCs that reached lifetime purchase volume milestones. Gross margin decreased for fiscal year 2018 compared to fiscal year 2017 primarily due to an increase in the percentage of our total revenue that wasderived from the lower gross margin IP security camera market combined with the decline in revenue from the higher gross margin sports camera and dronemarkets. We anticipate that gross margin will decrease over the next twelve months as the percentage of our total revenue from the consumer and professionalIP security markets increases while the percentage of revenue from the wearable sports and drone camera markets declines. 54 Gross margin increased for fiscal year 2017 compared to fiscal year 2016 primarily due to approximately $2.9 million of benefits received from therecovery and sale of previously written down inventory as a result of historical yield loss in the manufacturing process. These benefits contributedapproximately 1.0% of gross margin in fiscal year 2017. The increased gross margin was also attributable to a strong mix of products across the wearablesports camera, drone and automotive camera markets that generated gross margin improvements.Research and Development Change Year Ended January 31, 2018 2017 2018 2017 2016 Amount % Amount % (dollars in thousands) Research and development $115,510 $101,205 $82,927 $14,305 14.1% $18,278 22.0% Research and development expense increased for fiscal year 2018 compared to fiscal year 2017 primarily due to the increase in engineering headcountassociated with new SoC hardware and software development, principally in support of our computer vision technology for our current markets as well as newmarkets such as the automotive OEM and robotics markets. Our research and development engineering headcount increased to 519 at January 31, 2018compared to 491 at January 31, 2017. The increased engineering headcount resulted in increases in salary related expenses of approximately $5.2 million infiscal year 2018. The increased research and development expense was also attributable to additional stock-based compensation expense of approximately$4.8 million in fiscal year 2018, as a result of the issuance of options and restricted stock units for newly hired employees, our annual evergreen stockprogram for existing employees, and performance stock program for executives. SoC development related costs increased by approximately $3.8 million forfiscal year 2018 due to the timing and number of chips in development. Research and development expense increased for fiscal year 2017 compared to fiscal year 2016 primarily due to increases in engineering headcountand SoC development cost. Our research and development engineering headcount increased to 491 at January 31, 2017 compared to 460 at January 31, 2016.The increased engineering headcount resulted in increases in salary related expenses of approximately $3.7 million in fiscal year 2017. The increased salaryrelated expenses were partially offset by approximately $0.8 million of one-time sign-on bonus and non-compete bonus for certain VisLab S.r.l., or VisLab,shareholder employees that were recorded in the second quarter of fiscal year 2016 that did not recur in fiscal year 2017. The increased research anddevelopment expense was also attributable to additional stock-based compensation expense of approximately $10.6 million for fiscal year 2017, as a resultof the issuance of options, restricted stock, and restricted stock units for newly hired employees, our annual evergreen stock program for existing employees,and performance stock program for executives. SoC development related costs increased by approximately $4.6 million due to new SoC development,especially in the automotive market.Selling, General and Administrative Change Year Ended January 31, 2018 2017 2018 2017 2016 Amount % Amount % (dollars in thousands) Selling, general and administrative $47,792 $43,446 $37,738 $4,346 10.0% $5,708 15.1% Selling, general and administrative expense increased for fiscal year 2018 compared to fiscal year 2017 primarily due to increased stock-basedcompensation expense of approximately $3.0 million as a result of the issuance of options and restricted stock units for newly hired employees, our annualevergreen stock program for existing employees and performance stock program for executives. The increase was also attributable to approximately $1.2million of additional expenditures on outside professional services in fiscal year 2018 to support our business. Selling, general and administrative expense increased for fiscal year 2017 compared to fiscal year 2016 primarily due to increased stock-basedcompensation expense. Stock-based compensation expense increased by approximately $6.7 million as a result of the issuance of options, restricted stock,and restricted stock units for newly hired employees, our annual evergreen stock program for existing employees and performance stock program forexecutives. The increase was partially offset by a decrease of approximately $0.7 million in expense for outside professional services in fiscal year 2017. Thedecreased outside professional service expense was primarily due to legal expenses incurred in fiscal year 2016 to support the VisLab acquisition that did notrecur in fiscal year 2017.55 Other Income, Net Change Year Ended January 31, 2018 2017 2018 2017 2016 Amount % Amount % (dollars in thousands) Other income, net $1,298 $518 $530 $780 150.6% $(12) (2.3)% The increase in other income, net, for fiscal year 2018 compared to fiscal year 2017 was primarily due to approximately $579,000 of additionalinterest income from our deposits with financial institutions and approximately $498,000 of additional interest income from marketable security investments.The increase was partially offset by approximately $281,000 interest expense from software license liabilities. The decrease in other income, net, for fiscal year 2017 compared to fiscal year 2016 was primarily due to approximately $344,000 of net loss fromfluctuations in exchange rates in foreign currency transactions. The net loss was partially offset by approximately $316,000 of additional net interest incomefrom marketable security investments as a result of increased investment in fiscal year 2017.Provision for Income Taxes Change Year Ended January 31, 2018 2017 2018 2017 2016 Amount % Amount % (dollars in thousands)Provision for income taxes $6,877 $3,071 $8,701 $3,806 123.9% $(5,630) (64.7)%Effective tax rate 27% 5% 10% — 22% — (5)% Income tax expense and effective tax rate increased in fiscal year 2018 as compared to fiscal year 2017 primarily due to an unfavorable change in ourgeographic mix of profits as well as an increase in deferred tax expense of $2.3M as a result of the decrease in the corporate tax rate from 35% to 21%associated with the enactment of the Tax Cuts and Job Act of 2017. The increase was also attributable to approximately $3.0 million increase in non-deductible stock-based compensation expense. These increases were offset by a $1.9 million reduction in the amount of tax expense recorded for changes invaluation allowance, as the Company’s valuation allowance did not change significantly in fiscal year 2018. Income tax expense and effective tax rate decreased in fiscal year 2017 as compared to fiscal year 2016 primarily due to approximately $ 4.2 millionless valuation allowance recorded on our U.S. federal research and development credit carryforwards in fiscal year 2017. The decrease was also attributable toapproximately $3.3 million increase in tax benefits from excess stock-based compensation deductions following the adoption of Accounting StandardsUpdate 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09, in thefirst quarter of fiscal year 2017.Liquidity and Capital ResourcesCash FlowsThe following table summarizes our cash flows for the periods indicated: Year Ended January 31, 2018 2017 2016 (in thousands) Net cash provided by operating activities $85,403 $113,314 $123,561 Net cash used in investing activities (9,600) (45,734) (34,796)Net cash provided by (used in) financing activities (52,003) (12,764) 9,000 Net increase in cash and cash equivalents $23,800 $54,816 $97,765 56 Net Cash Provided by Operating ActivitiesFiscal year 2018 compared to fiscal year 2017: Cash provided by operating activities decreased primarily due to decreased net income as a result ofdecreased revenue and increased operating expenses adjusted for increased non-cash stock-based compensation expense. The decrease in cash flows fromoperating activities also was attributable to decreased liabilities associated with the timing of payments to suppliers and decreased deferred revenue. Thedecrease was partially offset by increased cash receipts associated with the timing of payments from our customers.Fiscal year 2017 compared to fiscal year 2016: Cash provided by operating activities decreased primarily due to decreased net income as a result ofdecreased revenue, adjusted for increased non-cash stock-based compensation expense. The decrease also was attributable to increased inventory purchasesand decreased deferred revenue associated with the timing of inventory shipments by our distributors. The decrease was partially offset by increasedliabilities associated with the timing of payments to suppliers.Net Cash Used in Investing ActivitiesFiscal year 2018 compared to fiscal year 2017: Net cash used in investing activities decreased primarily due to a reduction of approximately $40.7million of investments in debt securities compared to the prior fiscal year. The decreased investment expenditure was partially offset by approximately $3.6million of fewer cash receipts from the sale and maturity of debt securities and approximately $1.0 million of additional investment in property andequipment in fiscal year 2018 compared to the prior fiscal year.Fiscal year 2017 compared to fiscal year 2016: Net cash used in investing activities increased primarily due to an additional $62.8 millioninvestment in debt securities in fiscal year 2017. The increase was partially offset by the receipt of approximately $22.5 million in cash from sales andmaturities of debt securities and $30.0 million of cash paid for the VisLab acquisition in the second quarter of fiscal year 2016 that did not recur in fiscal year2017.Net Cash Provided by (Used in) Financing ActivitiesFiscal year 2018 compared to fiscal year 2017: Net cash used in financing activities increased primarily due to additional payments of $34.6 millionin cash for the repurchase of our ordinary shares under our stock repurchase program, as well as additional payments of $4.3 million in cash for intangibleassets, primarily software licenses, purchased in fiscal year 2018 compared to the prior fiscal year.Fiscal year 2017 compared to fiscal year 2016: Net cash used in financing activities increased primarily due to the payment of $20.2 million in cashfor the repurchase of our ordinary shares under our stock repurchase program in fiscal year 2017. The decrease was also attributable to approximately $1.6million less in cash proceeds from option exercises in fiscal year 2017.Stock Repurchase ProgramOur Board of Directors previously authorized a program to repurchase up to $75.0 million of our ordinary shares through June 30, 2017. On May 31,2017, our Board of Directors authorized the repurchase of up to an additional $50.0 million of our ordinary shares over a twelve-month period commencingJuly 1, 2017. As of January 31, 2018, we had repurchased a total of 1,499,884 shares for approximately $75.0 million in cash, and approximately $31.7million remained available for repurchases under the program through June 30, 2018. Repurchases under the program may be made from time-to-timethrough open market purchases, 10b5-1 plans or privately negotiated transactions subject to market conditions, applicable legal requirements and otherrelevant factors. The repurchase program does not obligate us to acquire any particular amount of ordinary shares, and it may be suspended at any time at thecompany's discretion. Repurchases are funded using working capital and any repurchased shares are recorded as authorized but unissued shares.Sources of LiquidityAs of January 31, 2018 and 2017, we had cash, cash equivalents and marketable securities of approximately $434.6 million and $405.4 million,respectively. During the past three fiscal years, we invested a total of $100.0 million in highly liquid, short-term marketable securities. As of January 31,2018, these securities had a fair value of approximately $101.7 million with insignificant unrealized losses caused by fluctuations in market value andinterest rates. We hold these investments as available-for-sale securities and mark them to market.57 Operating and Capital Expenditure RequirementsWe have generated net income annually since fiscal year 2010, and we have generated cash from operations annually since fiscal year 2009. Webelieve that our anticipated cash generated from operations and our existing cash balances will be sufficient to meet our anticipated cash requirementsthrough at least the next 12 months. In the future, we expect our operating and capital expenditures to increase as we increase headcount, expand ourbusiness activities, and implement and enhance our information technology platforms. As we expand our operations, we may require more working capital. Ifour available cash balances are insufficient to satisfy our future liquidity requirements, we may seek to sell equity or convertible debt securities or borrowfunds commercially. The sale of equity and convertible debt securities may result in dilution to our shareholders and those securities may have rights seniorto those of our ordinary shares. If we raise additional funds through the issuance of convertible debt securities, these securities could contain covenants thatwould restrict our operations. We may require additional capital beyond our currently anticipated amounts. Additional capital may not be available to us onreasonable terms, or at all.Our short- term and long-term capital requirements will depend on many factors, including the following: •our ability to generate cash from operations; •our ability to control our costs; •our ability to expand our research and development of new technologies and products to address new markets and applications; •the emergence of competing or complementary technologies or products; •the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, or participating inlitigation-related activities; and •our acquisition of complementary businesses, products and technologies.Contractual Obligations, Commitments and ContingenciesThe following table summarizes our outstanding contractual obligations as of January 31, 2018: Payment Due by Period as of January 31, 2018 (in thousands) Less than More than All Total 1 Year 1-3 Years 3-5 Years 5 Years Other Contractual Obligations Facilities and other obligations under operating leases (1) $7,223 $2,988 $3,396 $413 $426 $— Technology licenses (2) 9,168 4,584 4,584 — — — Purchase obligations (3) 24,256 24,256 — — — — Unrecognized tax benefits, including interest (4) 5,352 — — — — 5,352 Total $45,999 $31,828 $7,980 $413 $426 $5,352 (1)Facilities and other obligations under operating leases primarily represent facilities with initial lease terms in excess of one year. They are located inSanta Clara (California), China, Hong Kong, and Japan. The lease for our Santa Clara headquarters has a seven-year term and terminates in fiscal year2021. The lease for our Shanghai facility has a two-year term and terminates in fiscal year 2020. The lease for our Shenzhen facility has a three-yearterm and terminates in fiscal year 2019. The Hong Kong facility has a five-year term and terminates in fiscal year 2022. The lease for our Japan facilityhas a two-year term and terminates in fiscal year 2020.(2)Technology license obligations represent future cash payments for noncancelable internal-use software licenses which are used in product design.(3)Purchase obligations consist primarily of inventory purchase obligations with our independent contract manufacturers.(4)Unrecognized tax benefits, including interest, represent our liabilities for uncertain tax positions as of January 31, 2018. We are unable to reasonablyestimate the timing of payments in individual years due to uncertainties in the timing of the effective settlement of tax positions.58 Stock Options and Restricted Stock UnitsGrants of stock-based awards are key components of the compensation packages we provide to attract and retain certain employees to align theirinterests with the interests of existing shareholders. We recognize that these stock-based awards will dilute existing shareholders and have sought to limit thenumber of shares granted while providing competitive compensation packages. As of January 31, 2018, we had a total of 3.7 million outstanding stockoptions and unvested restricted stock and restricted stock units, which will potentially dilute our earnings per share. This potential dilution will only result ifoutstanding options vest and are exercised and restricted stock and restricted stock units vest and are settled. As of January 31, 2018, 82% of our outstandingoptions had exercise prices less than the then market price of our ordinary shares on such date.Off-Balance Sheet ArrangementsAs of January 31, 2018, we did not engage in any off-balance sheet arrangements, including the use of structured finance, special purpose entities orvariable interest entities.Recent Accounting PronouncementsSee Note 1, “Organization and Summary of Significant Accounting Policies—Recent Accounting Pronouncements” of the Notes to the ConsolidatedFinancial Statements, included in Part IV, Item 15 of this report, for a full description of recent accounting standards, including the respective dates ofadoption and effects on our consolidated financial position, results of operations and cash flows.Critical Accounting Policies and Significant Management EstimatesThe preparation of audited consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires usto make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities atthe date of the financial statements and the reported amounts of revenue and expense during the reported periods. On an ongoing basis, we evaluate ourestimates and assumptions, including those related to (i) the collectability of accounts receivable; (ii) write down of excess and obsolete inventories; (iii)intangible assets and goodwill; (iv) the estimated useful lives of long-lived assets; (v) impairment of long-lived assets and financial instruments; (vi) warrantyobligations; (vii) the valuation of stock-based compensation awards and financial instruments; (viii) the probability of performance objectives achievement;(ix) the realization of tax assets and estimates of tax liabilities, including reserves for uncertain tax positions; and (x) the recognition and disclosure ofcontingent liabilities. These estimates and assumptions are based on historical experience and on various other factors which we believe to be reasonableunder the circumstances. We may engage third-party valuation specialists to assist with estimates related to the valuation of financial instruments, assets andstock awards associated with various contractual arrangements. Such estimates often require the selection of appropriate valuation methodologies andsignificant judgment. Actual results could differ from these estimates under different assumptions or circumstances and such differences could be material.We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate tothe more significant areas involving management’s judgment and estimates:Revenue RecognitionWe generate revenue from the sales of our SoCs to OEMs or ODMs, either directly or through distributors. Revenue from sales directly to OEMs andODMs is recognized upon shipment provided that persuasive evidence of an arrangement exists, legal title to the products and risk of ownership havetransferred, the fee is fixed or determinable, and collection of the resulting receivable is reasonably assured. We have historically provided our distributorswith the rights to return excess levels of inventory and to future price adjustments. Given the inability to reasonably estimate these price changes and returns,revenue and costs related to shipments to distributors are deferred until we have received notification from our distributors that they have sold our products.Information reported by our distributors includes product resale price, quantity and end customer shipment information as well as remaining inventory onhand. At the time of shipment to a distributor, we record a trade receivable as there is a legally enforceable right to receive payment, reduce inventory for thevalue of goods shipped as legal title has passed to the distributor and defer the related margin as deferred revenue in the consolidated balance sheets. Anyprice adjustments are recorded as a change to deferred revenue at the time the adjustments are agreed upon.59 Arrangements with certain OEM customers provide for pricing that is dependent upon the end products into which our SoCs are used. Thesearrangements may also entitle us to a share of the product margin ultimately realized by the OEM. The minimum guaranteed amount of revenue related to thesale of products subject to these arrangements is recognized when all other elements of revenue recognition are met. Any amounts at the date of shipmentinvoiced in excess of the minimum guaranteed contract price are deferred until the additional amounts we are entitled to are fixed or determinable.Additional amounts earned by us resulting from margin sharing arrangements and determination of the end products into which the products are ultimatelyincorporated are recognized when end customer sales volume is reported to us. Revenue from margin sharing arrangements was not material for the fiscalyears ended January 31, 2018, 2017 and 2016, respectively.We also enter into engineering service agreements with certain customers. These agreements may include multiple deliverables, such as softwaredevelopment services, licensing of intellectual property and post-contract customer support, or PCS. We do not sell separately any of these components anddo not have Vendor Specific Objective Evidence, or VSOE, for the deliverables. Accordingly, revenues from these agreements are deferred for any amountsbilled until delivery of all the elements. If the agreements include PCS, the revenues are recognized ratably over the estimated supporting periods. Revenuefrom engineering service agreements was not material for the fiscal years ended January 31, 2018, 2017 and 2016, respectively. Cash Equivalents and Marketable SecuritiesWe consider all highly liquid investments with original maturities of less than three months at the time of purchase to be cash equivalents.Investments that are highly liquid with original maturities at the time of purchase greater than three months are considered as marketable securities.We classify these investments as “available-for-sale” securities carried at fair value, based on quoted market prices of similar assets, with theunrealized gains or losses reported, net of tax, as a separate component of shareholders’ equity and included in accumulated other comprehensive loss in theconsolidated balance sheets. The amortization of premiums and accretion of discounts and the realized gains and losses are both recorded in other income,net in the consolidated statements of operations. We review our investments for possible other-than-temporary impairments on a regular basis. If any loss oninvestment is believed to be other-than-temporary, a charge will be recorded and a new cost basis in the investment will be established. In evaluating whethera loss on a security is other-than-temporary, we consider the following factors: 1) general market conditions, 2) the duration and extent to which the fair valueis less than cost, 3) our intent and ability to hold the investment.For securities in an unrealized loss position which is deemed to be other-than-temporary, the difference between the security’s then-current amortizedcost basis and fair value is separated into (i) the amount of the impairment related to the credit loss (i.e., the credit loss component) and (ii) the amount of theimpairment related to all other factors (i.e., the non-credit loss component). The credit loss component is recognized in earnings. The non-credit losscomponent is recognized in accumulated other comprehensive loss. Due to the relative short term nature of the investments, there have been no other-than-temporary impairments recorded to date.Inventory ValuationWe record inventories at the lower of cost or net realizable value. The cost includes materials and other production costs and is computed usingstandard cost on a first-in, first-out basis. Inventory reserves are recorded for estimated obsolescence or unmarketable inventories based on forecast of futuredemand and market conditions. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the currentperiod. Once inventory is written down, a new accounting cost basis is established and, accordingly, any associated reserve is not released until the inventoryis sold or scrapped. There were no material inventory losses recognized for the fiscal years ended January 31, 2018, 2017 and 2016, respectively.Noncancelable Software LicenseWe account for a noncancelable on premise internal-use software license as the acquisition of an intangible asset and the incurrence of a liability tothe extent that all or a portion of the software licensing fees are not paid on or before the license acquisition date. The intangible asset and related liability arerecorded at net present value and interest expense is recorded over the payment term.Business Combinations and Intangible AssetsWe allocate the fair value of purchase price to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fairvalue of purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values of assetsacquired and liabilities assumed, especially with respect to intangible assets, our management makes significant estimates and assumptions.60 Critical estimates in valuing certain intangible assets include, but are not limited to, replacement cost. Our estimates of fair value are based uponassumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.Goodwill and In-Process Research and DevelopmentGoodwill and in-process research and development (“IPR&D”) are required to be tested for impairment at least annually in the fourth fiscal quarter orsooner whenever events or changes in circumstances indicate that the assets may be impaired. We have a single reporting unit for goodwill impairment testpurposes based on our business and reporting structure.We do not amortize goodwill. Acquired IPR&D is capitalized at fair value as an intangible asset and amortization commences upon completion of theunderlying projects. When a project underlying reported IPR&D is completed, the corresponding amount of IPR&D is reclassified as an amortizablepurchased intangible asset and is amortized over its estimated useful life.Stock-Based CompensationWe measure stock-based compensation for equity awards granted to employees and directors based on the estimated fair value on the grant date, andrecognize that compensation as expense using the straight-line attribution method for service condition awards or using the graded-vesting attributionmethod for awards with performance conditions over the requisite service period, which is typically the vesting period of each award. We determine the fairvalue of restricted stock and restricted stock units with service or performance conditions based on the fair market value of our ordinary shares on the grantdate. We use the Black-Scholes option pricing model to determine the fair value of stock options. Determining the fair value of stock options on the grantdate requires the input of various assumptions, including stock price of the underlying ordinary share, the exercise price of the stock option, expectedvolatility, expected term, risk-free interest rate and dividend rate. The expected term is calculated using the simplified method as prescribed in the guidanceprovided by the Securities and Exchange Commission, as neither relevant historical experience nor other relevant data are available to estimate futureexercise behavior. The expected volatility is calculated based on the weighted average of historical volatilities of our own stock price and the share prices ofsimilar companies that are publicly available for a period commensurate with the expected term. The risk-free interest rate is derived from an average of theU.S. Treasury constant maturity rates for the respective periods most closely commensurate with the expected term. The expected dividend yield is zerobecause we have not historically paid dividends and have no present intention to pay dividends. We use the Lattice pricing model and perform Monte CarloSimulation to evaluate the fair value of awards with market condition, including assumptions of historical volatility and risk-free interest rate commensuratewith the vesting term. Upon adoption of ASU 2016-09 in the first quarter of fiscal year 2017, we elect to account for forfeitures as they occur.Net Income Per Ordinary ShareBasic earnings per share is computed by dividing net income available to ordinary shareholders by the weighted-average number of ordinary sharesoutstanding during the period. Diluted earnings per share is computed by dividing net income available to ordinary shareholders by the weighted-averagenumber of ordinary shares outstanding during the period increased to include the number of additional ordinary shares that would have been outstanding ifpotentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased under the Company’semployee stock purchase plan, unvested restricted stock and restricted stock units. The dilutive effect of potentially dilutive securities is reflected in dilutedearnings per share by application of the treasury stock method.Income TaxesWe record income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expectedfuture tax consequences of events that have been recognized in our financial statements or tax returns. In estimating future tax consequences, generally allexpected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided when necessary to reducedeferred tax assets to the amount expected to be realized.We apply authoritative guidance for the accounting for uncertainty in income taxes. The guidance requires that tax effects of a position be recognizedonly if it is “more likely than not” to be sustained based solely on its technical merits as of the reporting date. Upon estimating our tax positions and taxbenefits, we consider and evaluate numerous factors, which may require periodic adjustments and which may not reflect the final tax liabilities. We adjust ourfinancial statements to reflect only those tax positions that are more likely than not to be sustained under examination.61 As part of the process of preparing consolidated financial statements, we are required to estimate our taxes in each of the jurisdictions in which weoperate. We estimate actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as accrualsand allowances not currently deductible for tax purposes. These differences result in deferred tax assets, which are included in the consolidated balancesheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in the consolidated statementsof operations become deductible expenses under applicable income tax laws, or loss or credit carryforwards are utilized.In assessing whether deferred tax assets may be realized, we consider whether it is more likely than not that some portion or all of deferred tax assetswill be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.We make estimates and judgments about our future taxable income based on assumptions that are consistent with our plans and estimates. Should theactual amounts differ from estimates, the amount of valuation allowance could be materially impacted. Any adjustment to the deferred tax asset valuationallowance would be recorded in the consolidated income statement for the periods in which the adjustment is determined to be required. ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKWe had cash, cash equivalents and marketable securities totaling $434.6 million and $405.4 million at January 31, 2018 and 2017, respectively. Ourcash is deposited in checking accounts with reputable financial institutions. The cash equivalents and marketable securities consist primarily of investmentsin debt securities. Our cash is held for working capital purposes. We do not enter into investments for trading or speculative purposes.Interest Rate Fluctuation RiskThe primary objectives of our investment activities are to preserve principal, provide liquidity and maximize income without significantly increasingrisk. Some of the securities we invest in are subject to market risk. This means that a change in prevailing interest rates may cause the principal amount of theinvestment to fluctuate. To minimize this risk, we maintain our portfolio of short-term investments in a variety of debt securities with high liquidity. We donot enter into investments for trading or speculative purposes. A 10% change in interest rates will not have a material impact on our future interest income orinvestment fair value. The risk associated with fluctuating interest rates is limited to our investment portfolio.Foreign Currency RiskTo date, all of our product sales and inventory purchases have been denominated in U.S. dollars. We therefore have not had any foreign currency riskassociated with these two activities. The functional currency of all of our entities is the U.S. dollar. Our operations outside of the United States incuroperating expenses and hold assets and liabilities denominated in foreign currencies, principally the New Taiwan Dollar and the Chinese Yuan Renminbi.Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly, the exchange ratesbetween the Chinese Yuan Renminbi and the U.S. dollar and between the New Taiwan Dollar and the U.S. dollar. Given that the operating expenses that weincur in currencies other than U.S. dollars have not been a significant percentage of our total revenue, we believe that the exposure to foreign currencyfluctuation risk from operating expenses is not material at this time. As we grow our operations, our exposure to foreign currency risk could become moresignificant. To date, we have not entered into any foreign currency exchange contracts and currently do not expect to enter into foreign currency exchangecontracts for trading or speculative purposes. 62 ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAFinancial StatementsThe financial statements required by this Item are set forth as a separate section of this Annual Report on Form 10-K. See Item 15 for a listing offinancial statements provided in the section titled “Financial Statements.”Supplementary Data (Unaudited)The following table sets forth unaudited supplementary quarterly financial data for the two year period ended January 31, 2018. In management’sopinion, the unaudited data has been prepared on the same basis as the audited information and includes all adjustments necessary for a fair presentation ofthe data for the periods presented. For the Three Months Ended Jan. 31, Oct. 31, Jul. 31, Apr. 30, Jan. 31, Oct. 31, Jul. 31, Apr. 30, 2018 2017 2017 2017 2017 2016 2016 2016 (in thousands, except per share data) Revenue $70,575 $89,062 $71,630 $64,135 $87,508 $100,490 $65,142 $57,157 Cost of revenue 25,224 32,448 26,825 23,172 28,994 34,167 21,672 20,450 Gross profit 45,351 56,614 44,805 40,963 58,514 66,323 43,470 36,707 Operating expenses: Research and development 31,574 29,796 27,538 26,602 27,129 25,967 23,643 24,466 Selling, general and administrative 12,386 11,700 11,962 11,744 11,302 10,686 10,565 10,893 Total operating expenses 43,960 41,496 39,500 38,346 38,431 36,653 34,208 35,359 Income from operations 1,391 15,118 5,305 2,617 20,083 29,670 9,262 1,348 Other income, net 602 319 224 153 188 132 171 27 Income before income taxes 1,993 15,437 5,529 2,770 20,271 29,802 9,433 1,375 Provision (benefit) for income taxes 732 3,713 2,226 206 1,921 757 801 (408)Net income $1,261 $11,724 $3,303 $2,564 $18,350 $29,045 $8,632 $1,783 Net income per share attributable to ordinary shareholders: Basic $0.04 $0.35 $0.10 $0.08 $0.56 $0.89 $0.27 $0.05 Diluted $0.04 $0.34 $0.10 $0.07 $0.53 $0.84 $0.25 $0.05 Net income per ordinary share for the year is computed independently and may not equal the sum of the quarterly net income per ordinary share.Our quarterly revenues and operating results are difficult to forecast. Therefore, we believe that period-to-period comparisons of our operating resultswill not necessarily be meaningful, and should not be relied upon as an indication of future performance. Also, operating results may fall below ourexpectations and the expectations of analysts or investors in one or more future quarters. If this were to occur, the market price of our ordinary shares wouldlikely decline. For further information regarding the quarterly fluctuation of our revenues and operating results, see Item 1A, “Risk Factors—Fluctuations inour operating results on a quarterly and annual basis could cause the market price of our ordinary shares to decline”. 63 ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENot applicable.ITEM 9A.CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresOur management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosurecontrols and procedures as of the end of the period covered by this Annual Report on Form 10-K. The term “disclosure controls and procedures” (as definedin Rules 13a- 15(e) and 15d- 15(e)) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that informationrequired to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, withinthe time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed toensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated andcommunicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisionsregarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possiblecontrols and procedures. Based upon such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of January 31, 2018, our disclosurecontrols and procedures were effective at the reasonable assurance level.Management’s Report on Internal Control over Financial ReportingManagement of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules13a-15(f) and 15(d)-15(f) under the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assuranceregarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally acceptedaccounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections ofany evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.Management has evaluated the effectiveness of our internal control over financial reporting based on the framework in Internal Control-IntegratedFramework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, managementhas concluded that our internal control over financial reporting was effective as of January 31, 2018.The effectiveness of our internal control over financial reporting as of January 31, 2018 has been audited by PricewaterhouseCoopers LLP, anindependent registered public accounting firm, as stated in their report, which appears herein. Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting during the Company’s fiscal quarter ended January 31, 2018 that havematerially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.Inherent Limitations of Disclosure Controls and Internal Control over Financial ReportingBecause of their inherent limitations, our disclosure controls and procedures and our internal control over financial reporting may not prevent materialerrors or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of thecontrol system are met. The effectiveness of our disclosure controls and procedures and our internal control over financial reporting is subject to risks,including that the controls may become inadequate because of changes in conditions or that the degree of compliance with our policies or procedures maydeteriorate.ITEM 9B.OTHER INFORMATIONNot applicable. 64 PART IIIITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEThe information responsive to this item is incorporated herein by reference to our Proxy Statement for our 2018 annual meeting of shareholders to befiled with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K.We have a Code of Business Conduct and Ethics for all of our directors, officers and employees. We also have a Code of Ethics for Finance Teamapplicable to our Chief Executive Officer, Chief Financial Officer and other Senior Financial Officers. These documents are available on our website athttp://investor.ambarella.com/corporate-governance. To date, there have been no waivers under our Code of Business Conduct and Ethics and Code of Ethicsfor Finance Team. We will post any amendments or waivers, if and when granted, of our Code of Business Conduct and Ethics and Code of Ethics for FinanceTeam on our website.ITEM 11.EXECUTIVE COMPENSATIONThe information responsive to this item is incorporated herein by reference to our Proxy Statement for our 2018 annual meeting of shareholders to befiled with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K.ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERSThe information responsive to this item is incorporated herein by reference to our Proxy Statement for our 2018 annual meeting of shareholders to befiled with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEThe information responsive to this item is incorporated herein by reference to our Proxy Statement for our 2018 annual meeting of shareholders to befiled with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K.ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICESThe information responsive to this item is incorporated herein by reference to our Proxy Statement for our 2018 annual meeting of shareholders to befiled with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by thisAnnual Report on Form 10-K. 65 PART IVITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES(a)(1) Financial StatementsThe following consolidated financial statements of the Registrant and Report of PricewaterhouseCoopers LLP, Independent Registered PublicAccounting Firm, are included herewith: Financial Statement Description Page• Report of Independent Registered Public Accounting Firm 67• Consolidated Balance Sheets As of January 31, 2018 and 2017 69• Consolidated Statements of Operations For the Years Ended January 31, 2018, 2017 and 2016 70• Consolidated Statements of Comprehensive Income For the Years Ended January 31, 2018, 2017 and 2016 71• Consolidated Statements of Shareholders’ Equity For the Years Ended January 31, 2018, 2017 and 2016 72• Consolidated Statements of Cash Flows For the Years Ended January 31, 2018, 2017 and 2016 73• Notes to Consolidated Financial Statements 74(a)(2) Financial Statement ScheduleFinancial statement schedules are omitted because they are not applicable or the required information is shown in the Financial Statements or thenotes thereto.(b)ExhibitsThe exhibits listed below in the accompanying “Exhibits Index” are filed or incorporated by reference as part of this Annual Report on Form 10-K. 66 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Ambarella, Inc. Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of Ambarella, Inc. and its subsidiaries as of January 31, 2018 and 2017, and the relatedconsolidated statements of operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended January 31,2018, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal controlover financial reporting as of January 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee ofSponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as ofJanuary 31, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2018 inconformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all materialrespects, effective internal control over financial reporting as of January 31, 2018, based on criteria established in Internal Control - Integrated Framework(2013) issued by the COSO. Basis for Opinions The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, andfor its assessment of the effectiveness of internal control over financial reporting, included in Management's Report on Internal Control over FinancialReporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company'sinternal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting OversightBoard (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and theapplicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internalcontrol over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financialstatements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles usedand significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internalcontrol over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performingsuch other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. 67 Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. /s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaMarch 30, 2018 We have served as the Company’s auditor since 2008. 68 AMBARELLA, INC.CONSOLIDATED BALANCE SHEETS(in thousands, except share and per share data) January 31, January 31, 2018 2017 ASSETS Current assets: Cash and cash equivalents $346,672 $322,872 Marketable securities 87,919 82,522 Accounts receivable, net 31,294 38,596 Inventories 23,383 20,145 Restricted cash 9 8 Prepaid expenses and other current assets 4,006 4,392 Total current assets 493,283 468,535 Property and equipment, net 6,449 4,988 Deferred tax assets, non-current 3,642 5,774 Intangible assets, net 14,417 4,149 Goodwill 26,601 26,601 Other non-current assets 2,257 2,224 Total assets $546,649 $512,271 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable 19,815 19,955 Accrued and other current liabilities 32,178 26,448 Income taxes payable 936 568 Deferred revenue, current 307 7,425 Total current liabilities 53,236 54,396 Other long-term liabilities 11,226 3,241 Total liabilities 64,462 57,637 Commitments and contingencies (Note 14) Shareholders' equity: Preference shares, $0.00045 par value per share, 20,000,000 shares authorized and no shares issued and outstanding at January 31, 2018 and January 31, 2017, respectively — — Ordinary shares, $0.00045 par value per share, 200,000,000 shares authorized at January 31, 2018 and January 31, 2017, respectively; 33,489,614 shares issued and outstanding at January 31, 2018; 33,369,032 shares issued and outstanding at January 31, 2017 15 15 Additional paid-in capital 221,186 212,276 Accumulated other comprehensive loss (279) (70)Retained earnings 261,265 242,413 Total shareholders’ equity 482,187 454,634 Total liabilities and shareholders' equity $546,649 $512,271 See accompanying notes to consolidated financial statements. 69 AMBARELLA, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(in thousands, except share and per share data) Year Ended January 31, 2018 2017 2016 Revenue $295,402 $310,297 $316,373 Cost of revenue 107,669 105,283 111,029 Gross profit 187,733 205,014 205,344 Operating expenses: Research and development 115,510 101,205 82,927 Selling, general and administrative 47,792 43,446 37,738 Total operating expenses 163,302 144,651 120,665 Income from operations 24,431 60,363 84,679 Other income, net 1,298 518 530 Income before income taxes 25,729 60,881 85,209 Provision for income taxes 6,877 3,071 8,701 Net income $18,852 $57,810 $76,508 Net income per share attributable to ordinary shareholders: Basic $0.57 $1.77 $2.42 Diluted $0.55 $1.68 $2.27 Weighted-average shares used to compute net income per share attributable to ordinary shareholders: Basic 33,224,803 32,671,221 31,633,936 Diluted 34,583,150 34,327,724 33,755,709 See accompanying notes to consolidated financial statements. 70 AMBARELLA, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) Year Ended January 31, 2018 2017 2016 Net income $18,852 $57,810 $76,508 Other comprehensive loss, net of tax: Unrealized losses on investments (209) (63) (6)Other comprehensive loss, net of tax (209) (63) (6)Comprehensive income $18,643 $57,747 $76,502 See accompanying notes to consolidated financial statements. 71 AMBARELLA, INC.CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY(in thousands, except share data) Accumulated Outstanding Additional Other Ordinary Shares Paid-in Comprehensive Retained Shares Amount Capital Loss Earnings Total Balance--January 31, 2015 30,837,529 $14 $140,564 $(1) $96,634 $237,211 Exercise of stock options 567,888 1 5,175 — — 5,176 Restricted stock awards granted 84,239 — — — — — Vesting of restricted stock units 764,517 — — — — — Employee stock purchase plan 79,186 — 3,100 — — 3,100 Stock-based compensation expense related to stock awardsgranted to employees and consultants — — 31,094 — — 31,094 Excess income tax benefit associated with stock-basedcompensation — — (3,627) — (3,627)Net unrealized losses on investments - net of taxes — — — (6) — (6)Net income — — — — 76,508 76,508 Balance--January 31, 2016 32,333,359 15 176,306 (7) 173,142 349,456 Cumulative effect of change in accounting principle — — 227 — 11,461 11,688 Exercise of stock options 235,923 — 3,230 — — 3,230 Restricted stock awards granted 184,155 — — — — — Vesting of restricted stock units 894,710 — — — — — Employee stock purchase plan 125,974 — 4,034 — — 4,034 Stock repurchase (405,089) — (20,183) — — (20,183)Stock-based compensation expense related to stock awardsgranted to employees and consultants — — 48,832 — — 48,832 Excess income tax benefit associated with stock-basedcompensation — — (170) — — (170)Net unrealized losses on investments - net of taxes — — — (63) — (63)Net income — — — — 57,810 57,810 Balance--January 31, 2017 33,369,032 15 212,276 (70) 242,413 454,634 Exercise of stock options 175,187 — 2,191 — — 2,191 Vesting of restricted stock units 932,454 — — — — — Employee stock purchase plan 107,736 — 4,646 — — 4,646 Stock repurchase (1,094,795) — (54,788) — — (54,788)Stock-based compensation expense related to stock awardsgranted to employees and consultants — — 56,861 — — 56,861 Net unrealized losses on investments - net of taxes — — — (209) — (209)Net income — — — — 18,852 18,852 Balance--January 31, 2018 33,489,614 $15 $221,186 $(279) $261,265 $482,187 See accompanying notes to consolidated financial statements.72 AMBARELLA, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(in thousands) Year Ended January 31, 2018 2017 2016 Cash flows from operating activities: Net income $18,852 $57,810 $76,508 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation of property and equipment 1,789 1,535 1,590 Amortization of intangible assets 2,981 50 16 Amortization/accretion of marketable securities 172 246 525 Stock-based compensation 56,861 48,832 31,094 Other non-cash items, net 164 83 155 Changes in operating assets and liabilities, net of effects of acquisitions: Accounts receivable 7,302 812 1,262 Inventories (3,238) (1,978) 3,627 Prepaid expenses and other current assets 379 (216) (572)Deferred tax assets 2,132 853 1,291 Other non-current assets (33) (107) (114)Accounts payable (140) 5,780 (6,880)Accrued liabilities 1,430 2,069 4,189 Income taxes payable 368 (219) 244 Deferred tax liabilities (40) (89) 43 Deferred revenue (7,026) (2,652) 4,939 Other long-term liabilities 3,450 505 5,644 Net cash provided by operating activities 85,403 113,314 123,561 Cash flows from investing activities: Acquisition, net of cash acquired — — (29,905)Purchase of investments (74,863) (115,546) (52,786)Sales of investments 10,900 31,078 17,732 Maturities of investments 58,050 41,435 32,248 Purchase of property and equipment (3,687) (2,701) (2,085)Net cash used in investing activities (9,600) (45,734) (34,796)Cash flows from financing activities: Proceeds from exercise of stock options and employee stock purchase plan 7,091 7,419 9,000 Stock repurchase (54,788) (20,183) — Payment for intangible assets (4,306) — — Net cash provided by (used in) financing activities (52,003) (12,764) 9,000 Net increase in cash and cash equivalents 23,800 54,816 97,765 Cash and cash equivalents at beginning of period 322,872 268,056 170,291 Cash and cash equivalents at end of period $346,672 $322,872 $268,056 Supplemental disclosure of cash flow information: Cash paid for income taxes $845 $2,070 $1,618 Supplemental disclosure of noncash investing activities: Unpaid liabilities related to intangible and fixed assets purchases $9,008 $481 $43 See accompanying notes to consolidated financial statements73 AMBARELLA, INC.Notes to Consolidated Financial Statements1. Organization and Summary of Significant Accounting PoliciesOrganizationAmbarella, Inc. (the “Company”) was incorporated in the Cayman Islands on January 15, 2004. The Company is a leading developer of low-power,high-definition (HD) and Ultra HD video compression and image processing solutions, and computer vision solutions. The Company combines its processordesign capabilities with its expertise in video and image processing, algorithms and software to provide a technology platform that is designed to be easilyscalable across multiple applications and enable rapid and efficient product development. The Company’s system-on-a-chip, or SoC, designs fully integratehigh-definition video processing, image processing, analysis, audio processing and system functions onto a single chip, delivering exceptional video andimage quality, differentiated functionality and low power consumption. Currently the Company is combining advanced computer vision technology with itsstate-of-the-art video to enable the next generation of intelligent cameras, advanced driver assistance systems (ADAS) and autonomous vehicles.The Company sells its solutions to leading original design manufacturers, or ODMs, and original equipment manufacturers, or OEMs, globally. Basis of ConsolidationThe Company’s fiscal year ends on January 31. The consolidated financial statements of the Company and its subsidiaries have been prepared inconformity with accounting principles generally accepted in the United States (“U.S. GAAP”). All intercompany transactions and balances have beeneliminated in consolidation.Use of EstimatesThe preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reportedamounts of revenue and expense during the reported periods. Actual results could differ from those estimates.On an ongoing basis, management evaluates its estimates and assumptions, including those related to (i) the collectability of accounts receivable;(ii) write down of excess and obsolete inventories; (iii) intangible assets and goodwill; (iv) the estimated useful lives of long-lived assets; (v) impairment oflong-lived assets and financial instruments; (vi) warranty obligations; (vii) the valuation of stock-based compensation awards and financial instruments;(viii) the probability of performance objectives achievement; (ix) the realization of tax assets and estimates of tax liabilities, including reserves for uncertaintax positions; and (x) the recognition and disclosure of contingent liabilities. These estimates and assumptions are based on historical experience and onvarious other factors which the Company believes to be reasonable under the circumstances. The Company may engage third-party valuation specialists toassist with estimates related to the valuation of financial instruments, assets and stock awards associated with various contractual arrangements. Suchestimates often require the selection of appropriate valuation methodologies and significant judgment. Actual results could differ from these estimates underdifferent assumptions or circumstances and such differences could be material.Concentration of RiskThe Company’s products are manufactured, assembled and tested by third-party contractors located primarily in Asia. The Company does not havelong-term agreements with these contractors. A significant disruption in the operations of one or more of these contractors would impact the production of theCompany’s products which could have a material adverse effect on its business, financial condition and results of operations.A substantial portion of the Company’s revenue is derived from sales through its distributor, Wintech Microelectronics Co., Ltd., or Wintech, whichserves as its non-exclusive sales representative in Asia other than Japan, and through one direct OEM customer, GoPro Inc., or GoPro. Termination of therelationships with these two customers could result in a temporary or permanent loss of revenue. Furthermore, any credit issues from these two customerscould impair their abilities to make timely payment to the Company. See Note 15 for additional information regarding concentration with these twocustomers.74 Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, cash equivalents, marketablesecurities and accounts receivable. The Company maintains its cash primarily in checking accounts with reputable financial institutions. Cash deposits heldwith these financial institutions may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on deposits ofits cash. The cash equivalents and marketable securities consist primarily of money market funds, asset-backed securities, commercial paper, U.S. governmentsecurities and debt securities of corporations which management assesses to be highly liquid, in order to limit the exposure of each investment. The Companydoes not hold or issue financial instruments for trading purposes.The Company performs ongoing credit evaluation of its customers and adjusts credit limits based upon payment history and customers’ creditworthiness. The Company regularly monitors collections and payments from its customers.Foreign Currency TransactionsThe U.S. dollar is the functional currency for the Company and its subsidiaries. Monetary assets and liabilities denominated in non-U.S. currencies arere-measured to U.S. dollars using current exchange rates in effect at the balance sheet date. Nonmonetary assets and liabilities are re-measured to U.S. dollarsusing historical exchange rates. Monetary and other accounts are re-measured to U.S. dollars using average exchange rates in effect during each period. Gainsor losses from foreign currency re-measurement are included in other income, net in the consolidated statements of operations, and, to date, have not beenmaterial.Fair Value of Financial InstrumentsFair value accounting is applied to all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed in thefinancial statements on a recurring basis. The carrying amounts reflected in the consolidated balance sheets for cash equivalents, accounts receivable,accounts payable, accrued liabilities and other current liabilities, approximate fair value due to the short-term nature.Cash Equivalents and Marketable SecuritiesThe Company considers all highly liquid investments with original maturities of less than three months at the time of purchase to be cash equivalents.Investments that are highly liquid with original maturities at the time of purchase greater than three months are considered as marketable securities.The Company classifies these investments as “available-for-sale” securities carried at fair value, based on quoted market prices of similar assets, withthe unrealized gains or losses reported, net of tax, as a separate component of shareholders’ equity and included in accumulated other comprehensive loss inthe consolidated balance sheets. The amortization of premiums and accretion of discounts and the realized gains and losses are both recorded in otherincome, net in the consolidated statements of operations. The Company reviews its investments for possible other-than-temporary impairments on a regularbasis. If any loss on investment is believed to be other-than-temporary, a charge will be recorded and a new cost basis in the investment will be established. Inevaluating whether a loss on a security is other-than-temporary, the Company considers the following factors: 1) general market conditions, 2) the durationand extent to which the fair value is less than cost, 3) the Company’s intent and ability to hold the investment.For securities in an unrealized loss position which is deemed to be other-than-temporary, the difference between the security’s then-current amortizedcost basis and fair value is separated into (i) the amount of the impairment related to the credit loss (i.e., the credit loss component) and (ii) the amount of theimpairment related to all other factors (i.e., the non-credit loss component). The credit loss component is recognized in earnings. The non-credit losscomponent is recognized in accumulated other comprehensive loss. Due to the relative short term nature of the investments, there have been no other-than-temporary impairments recorded to date.Trade Accounts Receivable and Allowances for Doubtful AccountsTrade accounts receivable are recorded at the invoiced amount and do not include finance charges. The Company performs ongoing credit evaluationof its customers and generally requires no collateral. The Company assesses the need for allowances for doubtful accounts for estimated losses resulting fromthe inability of its customers to make required payments by considering factors such as historical collection experience, credit quality, aging of the accountsreceivable balances and current economic conditions that may affect a customer’s ability to pay. There were no material write-offs of accounts receivable forthe fiscal years ended January 31, 2018, 2017 and 2016, respectively. There was no material allowance for doubtful accounts recorded as of January 31, 2018and 2017, respectively.75 InventoriesThe Company records inventories at the lower of cost or net realizable value. The cost includes materials and other production costs and is computedusing standard cost on a first-in, first-out basis. Inventory reserves are recorded for estimated obsolescence or unmarketable inventories based on forecast offuture demand and market conditions. Any adjustments to reduce the cost of inventories to their net realizable value are recognized in earnings in the currentperiod. Once inventory is written down, a new accounting cost basis is established and, accordingly, any associated reserve is not released until the inventoryis sold or scrapped. There were no material inventory losses recognized for the fiscal years ended January 31, 2018, 2017 and 2016, respectively.Property and EquipmentProperty and equipment are stated at cost and depreciated using the straight-line method over the estimated useful life for computer equipment,computer software, machinery, equipment and furniture and fixture. Leasehold improvements are amortized over the shorter of the lease term or theirestimated useful lives. Repairs and maintenance are charged to expense as incurred.Internal-Use SoftwareThe Company capitalizes certain software that is developed solely for internal use. The capitalization costs include charges from services provided todevelop software during the application development stage, costs incurred to obtain software, and certain costs from employees who are directly associatedwith and who directly devote time to the project. The capitalization begins when the preliminary project stage is completed and ceases no later than the pointat which the project is substantially complete and ready for its intended use after all substantial testing is completed. The internal-use software is amortizedover its estimated useful life. Repairs and maintenance are charged to expense as incurred.Noncancelable Software LicenseThe Company accounts for a noncancelable on premise internal-use software license as the acquisition of an intangible asset and the incurrence of aliability to the extent that all or a portion of the software licensing fees are not paid on or before the license acquisition date. The intangible asset and relatedliability are recorded at net present value and interest expense is recorded over the payment term.Business Combinations and Intangible AssetsThe Company allocates the fair value of purchase price to the assets acquired and liabilities assumed based on their estimated fair values. The excessof the fair value of purchase price over the fair values of these identifiable assets and liabilities is recorded as goodwill. When determining the fair values ofassets acquired and liabilities assumed, especially with respect to intangible assets, the management makes significant estimates and assumptions.Critical estimates in valuing certain intangible assets include, but are not limited to, replacement cost. Management’s estimates of fair value are basedupon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates.Goodwill and In-Process Research and DevelopmentThe Company does not amortize goodwill. Acquired in-process research and development, or IPR&D, is capitalized at fair value as an intangible assetand amortization commences upon completion of the underlying projects. When a project underlying reported IPR&D is completed, the correspondingamount of IPR&D is reclassified as an amortizable purchased intangible asset and is amortized over its estimated useful life. As of January 31, 2018, there wasno IPR&D amortized.76 Impairment of Long-Lived Assets Including Goodwill and Other Acquired Intangible AssetsThe Company reviews property and equipment and intangible assets, excluding goodwill, for impairment whenever events or changes incircumstances indicate that the carrying amount of an asset, or asset group, may not be recoverable. Determination of recoverability of assets to be held andused is measured by a comparison of the carrying amount of an asset, or asset group to estimated undiscounted future cash flows expected to be generated bythe asset, or asset group. If the carrying amount of an asset or asset group exceeds its estimated undiscounted future cash flows, an impairment charge isrecognized for the amount by which the carrying amount of the asset or asset group exceeds the estimated fair value of the asset or asset group. Fair value isdetermined based on the estimated discounted future cash flows expected to be generated by the asset or asset group. Events or changes in circumstances thatmay indicate that an asset is impaired include significant decreases in the market value of an asset, significant underperformance relative to expectedhistorical or projected future results of operations, a change in the extent or manner in which an asset is utilized, significant declines in the estimated fairvalue of the overall Company for a sustained period, shifts in technology, loss of key management or personnel, changes in the Company’s operating modelor strategy and competitive forces. There has been no occurrence of events to date that would trigger an impairment analysis. As such, no impairment chargehas been recognized as of January 31, 2018.The Company tests the goodwill for impairment at least annually in the fourth fiscal quarter, or sooner whenever events or changes in circumstancesindicate that the asset may be impaired. The Company has a single reporting unit for goodwill impairment test purposes based on its business and reportingstructure. No goodwill impairment has been identified to date.Cost Method InvestmentThe Company accounts for its investment in a privately held company under the cost method and reports the investment in other non-current assets inthe consolidated balance sheets. The Company monitors the carrying value of the investment and records a reduction in carrying value when a decline invalue is deemed to be other than temporary. To date, there have been no identified events or changes in circumstances that may have a significant adverseeffect on the fair value of this investment and the Company has not recognized any impairment losses related to this investment.Revenue RecognitionThe Company generates revenue from the sales of its SoCs to OEMs or ODMs, either directly or through distributors. Revenue from sales directly toOEMs and ODMs is recognized upon shipment provided that persuasive evidence of an arrangement exists, legal title to the products and risk of ownershiphave transferred, the fee is fixed or determinable, and collection of the resulting receivable is reasonably assured. The Company has historically provided itsdistributors with the rights to return excess levels of inventory and to future price adjustments. Given the inability to reasonably estimate these price changesand returns, revenue and costs related to shipments to distributors are deferred until the Company has received notification from its distributors that they havesold the Company’s products. Information reported by the Company’s distributors includes product resale price, quantity and end customer shipmentinformation as well as remaining inventory on hand. At the time of shipment to a distributor, the Company records a trade receivable as there is a legallyenforceable right to receive payment, reduces inventory for the value of goods shipped as legal title has passed to the distributor and defers the related marginas deferred revenue in the consolidated balance sheets. Any price adjustments are recorded as a change to deferred revenue at the time the adjustments areagreed upon.Arrangements with certain OEM customers provide for pricing that is dependent upon the end products into which the Company’s SoCs are used.These arrangements may also entitle the Company to a share of the product margin ultimately realized by the OEM. The minimum guaranteed amount ofrevenue related to the sale of products subject to these arrangements is recognized when all other elements of revenue recognition are met. Any amounts atthe date of shipment invoiced in excess of the minimum guaranteed contract price are deferred until the additional amounts the Company is entitled to arefixed or determinable. Additional amounts earned by the Company resulting from margin sharing arrangements and determination of the end products intowhich the products are ultimately incorporated are recognized when end customer sales volume is reported to the Company. Revenue from margin sharingarrangements was not material for the fiscal years ended January 31, 2018, 2017 and 2016, respectively.The Company also enters into engineering service agreements with certain customers. These agreements may include multiple deliverables, such assoftware development services, licensing of intellectual property and post-contract customer support, or PCS. The Company does not sell separately any ofthese components and does not have Vendor Specific Objective Evidence, or VSOE, for the deliverables. Accordingly, revenues from these agreements aredeferred for any amounts billed until delivery of all the elements. If the agreements include PCS, the revenues are recognized ratably over the estimatedsupporting periods. Revenues from engineering service agreements was not material for the fiscal years ended January 31, 2018, 2017 and 2016, respectively.77 Cost of RevenueCost of revenue includes cost of materials, cost associated with packaging and assembly, testing and shipping, cost of personnel, stock-basedcompensation, logistics and quality assurance, warranty cost, royalty expense, write-downs of inventories and allocation of overhead.Warranty CostsThe Company typically provides warranty on its products. The Company accrues for the estimated warranty costs at the time when revenue isrecognized. The warranty accruals are regularly monitored by management based upon historical experience and any specifically identified failures. Whilethe Company engages in extensive product quality assessment, actual product failure rates, material usage or service delivery costs could differ fromestimates and revisions to the estimated warranty liability would be required. As of January 31, 2018 and 2017, there was approximately $1.8 million and$0.5 million of warranty accruals recorded in the consolidated balance sheets, respectively.Research and DevelopmentResearch and development costs are expensed as incurred and consist primarily of personnel costs, product development costs, which includeengineering services, development software and hardware tools, license fees, costs of fabrication of masks for prototype products, other developmentmaterials costs, depreciation of equipment used in research and development and allocation of facility costs.Selling, General and AdministrativeSelling, general and administrative expenses consist of personnel costs, travel and trade show costs, legal expenses, other professional services andoccupancy costs. Advertising expenses were not material for the fiscal years ended January 31, 2018, 2017 and 2016, respectively.Operating LeasesThe Company recognizes rent expense on a straight-line basis over the term of the lease. The difference between rent expense and rent payment isrecorded as deferred rent and is included in accrued liabilities in the consolidated balance sheets.Stock-Based CompensationThe Company measures stock-based compensation for equity awards granted to employees and directors based on the estimated fair value on the grantdate, and recognizes that compensation as expense using the straight-line attribution method for service condition awards or using the graded-vestingattribution method for awards with performance conditions over the requisite service period, which is typically the vesting period of each award. TheCompany determines the fair value of restricted stock and restricted stock units with service or performance conditions based on the fair market value of itsordinary shares on the grant date. The Company uses the Black-Scholes option pricing model to determine the fair value of stock options. Determining thefair value of stock options on the grant date requires the input of various assumptions, including stock price of the underlying ordinary share, the exerciseprice of the stock option, expected volatility, expected term, risk-free interest rate and dividend rate. The expected term is calculated using the simplifiedmethod as prescribed in the guidance provided by the Securities and Exchange Commission, as neither relevant historical experience nor other relevant dataare available to estimate future exercise behavior. The expected volatility is calculated based on the weighted average of historical volatilities of its ownstock price and the share prices of similar companies that are publicly available for a period commensurate with the expected term. The risk-free interest rateis derived from an average of the U.S. Treasury constant maturity rates for the respective periods most closely commensurate with the expected term. Theexpected dividend yield is zero because the Company has not historically paid dividends and has no present intention to pay dividends. The Company usesthe Lattice pricing model and performs Monte Carlo Simulation to evaluate the fair value of awards with market conditions, including assumptions ofhistorical volatility and risk-free interest rate commensurate with the vesting term. Upon adoption of ASU 2016-09, Compensation – Stock Compensation(Topic 718): Improvements to Employee Share-Based Payment Accounting in the first quarter of fiscal year 2017, the Company elects to account forforfeitures as they occur.78 Income TaxesThe Company records income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for theexpected future tax consequences of events that have been recognized in its financial statements or tax returns. In estimating future tax consequences,generally all expected future events other than enactments or changes in the tax law or rates are considered. Valuation allowances are provided whennecessary to reduce deferred tax assets to the amount expected to be realized.The Company applies authoritative guidance for the accounting for uncertainty in income taxes. The guidance requires that tax effects of a positionbe recognized only if it is “more likely than not” to be sustained based solely on its technical merits as of the reporting date. Upon estimating its taxpositions and tax benefits, the Company considers and evaluates numerous factors, which may require periodic adjustments and which may not reflect thefinal tax liabilities. The Company adjusts its financial statements to reflect only those tax positions that are more likely than not to be sustained underexamination.As part of the process of preparing consolidated financial statements, the Company is required to estimate its taxes in each of the jurisdictions inwhich it operates. The Company estimates actual current tax exposure together with assessing temporary differences resulting from differing treatment ofitems, such as accruals and allowances not currently deductible for tax purposes. These differences result in deferred tax assets, which are included in theconsolidated balance sheets. In general, deferred tax assets represent future tax benefits to be received when certain expenses previously recognized in theconsolidated statements of operations become deductible expenses under applicable income tax laws, or loss or credit carryforwards are utilized.In assessing whether deferred tax assets may be realized, the Company considers whether it is more likely than not that some portion or all of deferredtax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income.The Company makes estimates and judgments about its future taxable income based on assumptions that are consistent with its plans and estimates.Should the actual amounts differ from estimates, the amount of valuation allowance could be materially impacted. Any adjustment to the deferred tax assetvaluation allowance would be recorded in the consolidated income statement for the periods in which the adjustment is determined to be required.Net Income Per Ordinary ShareBasic earnings per share is computed by dividing net income available to ordinary shareholders by the weighted-average number of ordinary sharesoutstanding during the period. Diluted earnings per share is computed by dividing net income available to ordinary shareholders by the weighted-averagenumber of ordinary shares outstanding during the period increased to include the number of additional ordinary shares that would have been outstanding ifthe potentially dilutive securities had been issued. Potentially dilutive securities include outstanding stock options, shares to be purchased under theCompany’s employee stock purchase plan, unvested restricted stock and restricted stock units. The dilutive effect of potentially dilutive securities isreflected in diluted earnings per share by application of the treasury stock method.Comprehensive Income (Loss)Comprehensive income (loss) includes unrealized gains or losses from available-for-sale securities that are excluded from net income.79 Recent Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue fromContracts with Customers (Topic 606) (“ASU 2014-09”). The new revenue recognition guidance provides a five-step analysis of transactions to determinewhen and how revenue is recognized. The guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer ofpromised goods or services to customers. The FASB issued several updates to the guidance. The new revenue guidance may be adopted by full retrospectivemethod, which applies retrospectively to each prior period presented, or by modified retrospective method with the cumulative effect adjustment recognizedin the beginning of retained earnings as of the date of adoption. The Company elects to adopt the new guidance using the modified retrospective method.Under this transition method, the Company elects to apply this new guidance only to contracts that are not completed at the adoption date. For contracts thatwere modified before the adoption date, the Company elects to reflect the aggregate effect of all modifications that occur before the adoption date whenidentifying performance obligations, determining the transaction price, and allocating the transaction price to performance obligations. The most significantimpacts of this new guidance for the Company relate to the determination of transaction price and the timing of revenue recognition for transactions with itsdistributors. As a result, the Company will recognize product revenue upon shipment and transfer of control to distributors (known as “sell-in” revenuerecognition) rather than shipment to the end customers (known as “sell-through” revenue recognition) based on its estimate of the consideration it expects toreceive. The Company also elects to exclude amounts collected from customers for all sales taxes from the transaction price. The impact of this change uponadoption was not material. Furthermore, the Company has made investments and will continuously invest in system design, changing processes anddesigning operational and internal control structures in order to meet the new standard requirements.In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This standard requires entities that lease assets to recognize on the balancesheet the assets and liabilities for the rights and obligations created by those leases. The standard is effective for fiscal years and the interim periods withinthose fiscal years beginning after December 15, 2018. The guidance is required to be applied by the modified retrospective transition approach. TheCompany is currently assessing the impact of the adoption of this new guidance on its financial position, results of operations and disclosures.In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326), to introduce a new impairment model for recognizingcredit losses on financial instruments based on an estimate of current expected credit losses (“ECL”). Under the new model, an entity is required to estimateECL on available-for-sale (AFS) debt securities only when the fair value is below the amortized cost of the asset and is no longer based on an impairmentbeing “other-than-temporary”. The new model also requires the impairment calculation on an individual security level and requires an entity use presentvalue of cash flows when estimating the ECL. The credit-related losses are required to be recognized through earnings and non-credit related losses arereported in other comprehensive income. The ASU will be effective for public entities in fiscal years beginning after December 15, 2019, including interimperiods within those fiscal years. The new guidance will require modified retrospective application to all outstanding instruments, with a cumulative effectadjustment recorded to opening retained earnings as of the beginning of the first period in which the guidance becomes effective. The Company does notbelieve the adoption of this new guidance will have a material impact on its consolidated financial statements.In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory. The new guidancerequires that entities recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The newguidance will be effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those annual reportingperiods. The new guidance should also be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of thebeginning of the period of adoption. The Company does not believe the adoption of this new guidance will have a material impact on its financial position,results of operations and disclosures.In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), to require entities to show the changes in the total of cash,cash equivalents, restricted cash and restricted cash equivalents in the statement of cash flows. As a result, entities will no longer present transfers betweencash and cash equivalents and restricted cash and restricted cash equivalents in the statement of cash flows. When cash, cash equivalents, restricted cash andrestricted cash equivalents are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in thestatement of cash flows to the related captions in the balance sheet. Entities will also have to disclose the nature of restricted cash and restricted cashequivalent balances. The new guidance will be effective for fiscal years beginning after December 15, 2017, including the interim periods within those yearsand is applied retrospectively. The Company does not believe the adoption of this new guidance will have a material impact on its consolidated statement ofcash flows and disclosures.80 In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test of Goodwill Impairment,to eliminate the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record animpairment charge based on the excess of a reporting unit’s carrying amount over its fair value. This new guidance will be applied prospectivelyand is effective for annual and interim periods beginning after December 15, 2019. The Company does not believe the adoption of this new guidancewill have a material impact on its financial position, results of operations and disclosures. In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20): PremiumAmortization On Purchased Callable Debt Securities, to shorten the amortization period for the premium to the earliest call date instead of thecontractual life of the instrument. This new guidance will be effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2018. Entities will be required to apply the new guidance using the modified retrospective method with a cumulative-effectadjustment to retained earnings upon the adoption date. The Company does not believe the adoption of this new guidance will have a material impact onits financial position, results of operations and disclosures.In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification ofCertain Tax Effects from Accumulated Other Comprehensive Income, to permit entities to have the option to reclassify tax effects stranded inaccumulated other comprehensive income as a result of tax reform to retained earnings. The FASB also gives entities the option to apply theguidance retrospectively or in the period of adoption. The guidance is effective for fiscal years beginning after December 15, 2018 and interimperiods within those fiscal years. Early adoption in any period is permitted. The Company does not make such election and believes that theadoption of this new guidance will not have an impact on its financial position and disclosures. 2. Financial Instruments and Fair ValueThe Company invests a portion of its cash in debt securities that are denominated in United States dollars. The investment portfolio consists of moneymarket funds, asset-backed securities, commercial paper, U.S. government securities and debt securities of corporations. All of the investments are classifiedas available-for-sale securities and reported at fair value in the consolidated balance sheets as follows: As of January 31, 2018 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Money market funds $13,788 $— $— $13,788 Commercial paper 5,480 — — 5,480 Corporate bonds 53,175 — (196) 52,979 Asset-backed securities 11,048 — (44) 11,004 U.S. government securities 18,495 — (39) 18,456 Total cash equivalents and marketable securities $101,986 $— $(279) $101,707 As of January 31, 2017 Amortized Cost Unrealized Gains Unrealized Losses Fair Value (in thousands) Money market funds $8,328 $— $— $8,328 Demand deposits 10,000 $10,000 Commercial paper 4,784 — — 4,784 Corporate bonds 42,713 6 (41) 42,678 Asset-backed securities 11,686 1 (12) 11,675 U.S. government securities 23,409 6 (30) 23,385 Total cash equivalents and marketable securities $100,920 $13 $(83) $100,850 As of January 31,2018 January 31,2017 (in thousands) Included in cash equivalents $13,788 $18,328 Included in marketable securities 87,919 82,522 Total cash equivalents and marketable securities $101,707 $100,85081 The contractual maturities of the investments at January 31, 2018 and 2017 were as follows: As of January 31,2018 January 31,2017 (in thousands) Due within one year $63,476 $76,992 Due within one to two years 38,231 23,858 Total cash equivalents and marketable securities $101,707 $100,850 The unrealized losses on the available-for-sale securities were caused by fluctuations in market value and interest rates as a result of the economicenvironment. As the decline in market value was attributable to changes in market conditions and not credit quality, and because the Company neitherintended to sell nor was it more likely than not that it will be required to sell these investments prior to a recovery of par value, the Company did not considerthese investments to be other-than temporarily impaired as of January 31, 2018 and 2017, respectively.The following fair value hierarchy is applied for disclosure of the inputs used to measure fair value. This hierarchy prioritizes the inputs into threebroad levels as follows:Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.Level 2—Inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the assets or liabilities, eitherdirectly or indirectly through market corroboration, for substantially the full term of the financial instruments.Level 3—Unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. The inputs requiresignificant management judgment or estimation.The Company measures the fair value of money market funds and demand deposits using quoted prices in active markets for identical assets andclassifies them within Level 1. The fair value of the Company’s investments in other debt securities are obtained based on quoted prices for similar assets inactive markets and are classified within Level 2.The following tables present the fair value of the financial instruments measured on a recurring basis as of January 31, 2018 and 2017, respectively: As of January 31, 2018 Total Level 1 Level 2 Level 3 (in thousands) Money market funds $13,788 $13,788 $— $— Commercial paper 5,480 — 5,480 — Corporate bonds 52,979 — 52,979 — Asset-backed securities 11,004 — 11,004 — U.S. government securities 18,456 — 18,456 — Total cash equivalents and marketable securities $101,707 $13,788 $87,919 $— As of January 31, 2017 Total Level 1 Level 2 Level 3 (in thousands) Money market funds $8,328 $8,328 $— $— Demand deposits 10,000 10,000 Commercial paper 4,784 — 4,784 — Corporate bonds 42,678 — 42,678 — Asset-backed securities 11,675 — 11,675 — U.S. government securities 23,385 — 23,385 — Total cash equivalents and marketable securities $100,850 $18,328 $82,522 $— 82 3. InventoriesInventories at January 31, 2018 and 2017 consisted of the following: As of January 31, 2018 2017 (in thousands) Work-in-progress $12,073 $10,105 Finished goods 11,310 10,040 Total $23,383 $20,145 The increase in inventory as of January 31, 2018 was primarily to support the launch of new SoCs. 4. Property and Equipment, netDepreciation expense was approximately $1.8 million, $1.5 million and $1.6 million for the years ended January 31, 2018, 2017 and 2016,respectively. Property and equipment at January 31, 2018 and 2017 consisted of the following: As of January 31, 2018 2017 (in thousands) Computer equipment and software $8,611 $6,798 Machinery and equipment 4,761 3,405 Furniture and fixtures 917 797 Leasehold improvements 2,092 1,672 Construction in progress — 755 16,381 13,427 Less: accumulated depreciation and amortization (9,932) (8,439)Total property and equipment, net $6,449 $4,988 5. Intangible AssetsThe intangible assets primarily consist of $4.1 million of IPR&D from the acquisition of VisLab S.r.l., or VisLab, in June 2015 and $10.3 million ofnoncancelable software licenses, net of amortization expense. Acquired IPR&D is capitalized at fair value and the amortization commences upon completionof the underlying projects. When a project underlying reported IPR&D is completed, the corresponding amount of IPR&D is reclassified as an amortizablepurchased intangible asset and is amortized over its estimated useful life. As of January 31, 2018, there was no IPR&D amortized. The Company willdetermine the project incorporating the VisLab IPR&D to be completed when a related chip begins mass production to address the level 3 and aboveadvanced driving assistance systems markets.During the twelve months ended January 31, 2018, the Company entered into certain internal-use noncancelable software license agreements in whichthe Company committed to pay an aggregate amount of $13.9 million through January 2020. The licenses have been capitalized as intangible assets, and thecorresponding future payments have been recorded as liabilities at net present value. As of January 31, 2018, $4.3 million was recorded in accrued and othercurrent liabilities and $4.5 million was recorded in other long-term liabilities in the consolidated balance sheets.The carrying amounts of intangible assets as of January 31, 2018 and 2017 were as follows: As of January 31, 2018 As of January 31, 2017 GrossCarryingAmount AccumulatedAmortization Net CarryingAmount GrossCarryingAmount AccumulatedAmortization Net CarryingAmount (in thousands) In-process research and development $4,100 $— $4,100 $4,100 $— $4,100 Internal-use software license 13,404 (3,087) 10,317 155 (106) 49 Total acquired intangible assets $17,504 $(3,087) $14,417 $4,255 $(106) $4,149 83 The amortization expense related to these software licenses was approximately $3.0 million for the fiscal year ended January 31, 2018 but was notmaterial for the fiscal years ended January 31, 2017 and 2016, respectively. The expected annual amortization expense related to these software licenses as ofJanuary 31, 2018 is as follows: As of January 31, 2018 Fiscal Year (in thousands) 2019 $4,569 2020 4,473 2021 1,275 2022 — 2023 — Thereafter — Total future amortization expenses: $10,317 There were no intangible asset impairments for the fiscal years ended January 31, 2018, 2017 and 2016, respectively. 6. Goodwill On June 25, 2015, the Company completed the acquisition of VisLab, a privately-held Italian company that develops computer vision and intelligentcontrol systems for automotive and other commercial applications, including advanced driver assistance systems and several generations of autonomousvehicle driving systems, for $30.0 million in cash. As a result, there was $25.3 million attributed to goodwill, $4.1 million attributed to intangible assets and$0.6 million attributed to net assets acquired. A deferred tax liability of $1.3 million related to the intangible assets was recorded to account for the differencebetween financial reporting and tax basis at the acquisition date, with an addition to goodwill. The Company does not amortize goodwill. There were nogoodwill impairments for the fiscal years ended January 31, 2018, 2017 and 2016, respectively. 7. Accrued and Other Current LiabilitiesAccrued and other current liabilities at January 31, 2018 and 2017 consisted of the following: As of January 31, 2018 2017 (in thousands) Accrued employee compensation $15,977 $14,685 Accrued warranty 1,750 500 Accrued rebates 584 972 Accrued product development costs 6,669 7,605 Software license liabilities, current 4,346 — Other accrued liabilities 2,852 2,686 Total accrued and other current liabilities $32,178 $26,448 8. Deferred Revenue, CurrentDeferred revenue and related cost at January 31, 2018 and 2017 consisted of the following: As of January 31, 2018 2017 (in thousands) Deferred revenue on product shipments $36 $7,725 Deferred revenue from licenses & services 271 1,748 Deferred cost of revenue on product shipments — (2,048)Total deferred revenue, net $307 $7,425 The decrease in deferred revenue on product shipments and related cost at January 31, 2018 was primarily due to the timing of shipments from theCompany’s distributors.84 9. Other Long-Term LiabilitiesOther long-term liabilities at January 31, 2018 and 2017 consisted of the following: As of January 31, 2018 2017 (in thousands) Unrecognized tax benefits, including interest $5,352 $1,905 Deferred tax liabilities, non-current 1,293 1,333 Software license liabilities, non-current 4,484 — Other long-term liabilities 97 3 Total other long-term liabilities $11,226 $3,241 The increase in unrecognized tax benefits at January 31, 2018 was primarily due to tax positions related to certain transfer pricing arrangements. 10. Capital StockPreference sharesAfter completion of the Company’s initial public offering, or IPO, a total of 20,000,000 preference shares, with a $0.00045 par value per share, wereauthorized. There were no shares issued and outstanding as of January 31, 2018 and 2017, respectively.Ordinary shares200,000,000 ordinary shares were authorized at January 31, 2018 and 2017, respectively. As of January 31, 2018 and 2017, the following ordinaryshares were reserved for future issuance: As of January 31, 2018 2017 Shares reserved for options, restricted stock and restricted stock units 5,561,653 5,167,688 Shares reserved for employee stock purchase plan 1,561,841 1,252,465Shares repurchased On May 31, 2016, the Company’s Board of Directors authorized the repurchase of up to $75.0 million of the Company’s ordinary shares through June30, 2017. On May 31, 2017, the Company’s Board of Directors authorized the additional repurchase of up to $50.0 million of the Company’s ordinary sharesover a twelve-month period commencing July 1, 2017. Repurchases may be made from time-to-time through open market purchases, 10b5-1 plans orprivately negotiated transactions subject to market conditions, applicable legal requirements and other relevant factors. The repurchase program does notobligate the Company to acquire any particular amount of ordinary shares, and it may be suspended at any time at the Company’s discretion. The repurchaseprogram is funded using the Company’s working capital and any repurchased shares are recorded as authorized but unissued shares. There were 1,094,795shares repurchased during the twelve months ended January 31, 2018 for approximately $54.8 million in cash and there were 405,089 shares repurchasedduring the twelve months ended January 31, 2017 for approximately $20.2 million in cash. As of January 31, 2018, a total of 1,499,884 shares have beenrepurchased for approximately $75.0 million in cash and recorded as a reduction to equity. As of January 31, 2018, there was approximately $31.7 millionavailable for repurchases under the repurchase program through June 30, 2018. 85 11. Employee Benefits and Stock-based Compensation401(k) PlanThe Company maintains a defined contribution 401(k) plan (the “401(k) Plan”) for all of its eligible U.S. employees. Under the 401(k) Plan, eligibleemployees may contribute up to the Internal Revenue Service annual contribution limitation. The Company is responsible for administrative costs of thePlan. The Company has not had any matching contributions to date.Stock Option Plans2004 Stock Plan. The 2004 Stock Plan provides for the grant of incentive stock options (“ISOs”) within the meaning of Section 422 of the InternalRevenue Code of 1986, as amended (the “Code”), nonstatutory stock options (“NSOs”), stock purchase rights to acquire restricted stock and restricted stockunits. Upon the completion of the IPO, no additional awards will be granted under the 2004 Plan and the 2004 Plan was terminated. However, all outstandingstock options and other awards previously granted under the 2004 Plan will remain subject to the terms of the 2004 Plan.2012 Equity Incentive Plan. The 2012 Equity Incentive Plan, or EIP, permits the grant of ISOs, within the meaning of Section 422 of the Code, toemployees of the Company and any of the Company’s subsidiary corporations, and the grant of NSOs, stock appreciation rights, restricted stock, restrictedstock units, performance units, performance shares, deferred stock units and dividend equivalents to employees, directors and consultants of the Companyand any of the Company’s subsidiary corporations’ employees and consultants.The exercise price of ISOs granted to a holder of more than 10% of the voting power of all classes of the Company’s shares shall be no less than 110%of fair market value on the grant date. The exercise price of ISOs granted to other employees and NSOs shall be no less than 100% of fair market value on thegrant date. Options granted under the Plan have a term of up to 10 years from grant date. Options granted to new employees generally vest 25% on the firstanniversary service date of the grant and remainder vest ratably over the following 36 months. Restricted stock and restricted stock units granted to new employees generally vest as to 1/4th of the shares on the first anniversary service date of thegrant and 1/16th of the shares vest every 3 months thereafter, so as to be 100% vested on the fourth anniversary of the vesting commencement date.Vesting schedules for other service condition, market condition or performance condition awards vary and are subject to approval by the board ofdirectors; provided that the performance condition associated awards shall not vest at all until the performance conditions are achieved and are subject to theaward’s holders continuing to provide services to the Company through such vesting dates. The performance condition awards are automatically forfeited intheir entirety, without any cost to or action by the Company, if there has been no achievement of the performance. The holders of restricted stock have votingpower and other rights with respect to such shares, provided, however, that such shares are held in escrow and subject to forfeiture until the shares vested.On February 1, 2017 and February 1, 2016, the Company added 1,501,606 and 1,455,001 ordinary shares, respectively, to the ordinary shares reservedfor issuance, pursuant to an “evergreen” provision contained in the EIP. Pursuant to such provision, on February 1st of each fiscal year, the number ofordinary shares reserved for issuance under the EIP is automatically increased by a number equal to the lesser of (i) 3,500,000 ordinary shares, (ii) four andone half percent (4.5%) of the aggregate number of ordinary shares outstanding on January 31st of the preceding fiscal year, or (iii) a lesser number of sharesthat may be determined by the Company’s Board of Directors.Amended and Restated 2012 Employee Stock Purchase Plan. The Amended and Restated 2012 Employee Stock Purchase Plan, or ESPP, permitseligible participants to purchase ordinary shares at a discount through contributions up to 15% of their eligible compensation, subject to any IRS limitations.The ESPP provides each offering and purchasing period of six months in duration. The purchase price is 85% of the lower of the closing price of theCompany’s ordinary shares on the first trading day of each offering period or on the purchase date.On February 1, 2017 and February 1, 2016, the Company added 417,112 and 404,166 ordinary shares, respectively, to the ordinary shares reserved forissuance, pursuant to an “evergreen” provision contained in the ESPP. Pursuant to such provision, on February 1st of each fiscal year, the number of ordinaryshares reserved for issuance under the ESPP is automatically increased by a number equal to the lesser of (i) 1,500,000 ordinary shares, (ii) one and onequarter percent (1.25%) of the aggregate number of ordinary shares outstanding on such date, or (iii) an amount determined by the Company’s Board ofDirectors or a duly authorized committee of the Board of Directors.86 Stock-based CompensationThe following table presents the classification of stock-based compensation for the periods indicated: Year Ended January 31, 2018 2017 2016 (in thousands) Stock-based compensation: Cost of revenue $1,306 $1,078 $657 Research and development 34,575 29,729 19,082 Selling, general and administrative 20,980 18,025 11,355 Total stock-based compensation $56,861 $48,832 $31,094 As of January 31, 2018, total unrecognized compensation cost related to unvested stock options was $6.4 million and is expected to be recognizedover a weighted-average period of 2.21 years. Total unrecognized compensation cost related to unvested restricted stock units was $100.1 million and isexpected to be recognized over a weighted-average period of 2.72 years. Total unrecognized compensation cost related to unvested restricted stock awardswas $3.3 million and is expected to be recognized over a weighted-average period of 1.08 years.The following table sets forth the weighted-average assumptions used to estimate the fair value of the stock options and employee stock purchase planawards for the periods indicated: Year Ended January 31, 2018 2017 2016 Stock Options: Volatility 53% 38% 57%Risk-free interest rate 2.08% 1.59% 1.74%Expected term (years) 6.08 6.00 6.08 Dividend yield 0% 0% 0%Employee stock purchase plan awards: Volatility 44% 54% 63%Risk-free interest rate 1.03% 0.51% 0.21%Expected term (years) 0.5 0.5 0.5 Dividend yield 0% 0% 0% 87 The Company calculates expected volatility for stock options based on the weighted average of historical volatilities of its own stock price and theshare prices of similar companies that are publicly available for a period commensurate with the expected term. The Company calculates expected volatilityfor ESPP based on its own historical stock price for a period commensurate with the offering period. The following table summarizes stock option activities for the periods indicated: Option Outstanding Weighted- Total Intrinsic Average Weighted- Value of Remaining Aggregate Weighted- Average options Contractual Intrinsic Average Grant-date Exercised Term Value Shares Exercise Price Fair Value (in thousands) (in years) (in thousands) Outstanding at January 31, 2015 2,281,909 $13.00 Granted 179,700 71.36 $38.81 Exercised (567,888) 9.11 $37,603 Forfeited (40,331) 35.65 Outstanding at January 31, 2016 1,853,390 19.36 Granted 110,500 47.82 $18.76 Exercised (235,923) 13.69 $10,788 Forfeited (16,708) 55.07 Expired (7,735) 14.19 Outstanding at January 31, 2017 1,703,524 21.66 Granted 132,250 54.66 $28.28 Exercised (175,187) 12.50 $7,446 Forfeited (27,721) 56.97 Expired (21,522) 36.31 Outstanding at January 31, 2018 1,611,344 $24.56 4.63 $45,868 Exercisable at January 31, 2018 1,351,181 $18.91 3.93 $44,868 The intrinsic value of options outstanding and exercisable is calculated based on the difference between the fair market value of the Company’sordinary shares on the reporting date and the exercise price. The closing price of the Company’s ordinary shares was $50.40 on January 31, 2018, as reportedby The NASDAQ Global Market. The intrinsic value of exercised options is calculated based on the difference between the fair market value of theCompany’s ordinary shares on the exercise date and the exercise price.The following table summarizes restricted stock and restricted stock units activities for the periods indicated: Weighted- Average Grant-Date Shares Fair Value Unvested at January 31, 2015 1,980,448 $26.82 Granted 1,314,387 66.14 Vested (769,779) 27.82 Forfeited (29,568) 42.11 Unvested at January 31, 2016 2,495,488 47.04 Granted 676,598 67.68 Vested (955,230) 39.28 Forfeited (41,183) 52.49 Unvested at January 31, 2017 2,175,673 56.76 Granted 1,052,235 47.11 Vested (1,006,130) 47.55 Forfeited (118,497) 54.72 Unvested at January 31, 2018 2,103,281 $56.45 88 Total fair value as of the respective vesting dates of restricted stock and restricted stock units vested for the fiscal years ended January 31, 2018, 2017and 2016 was approximately $52.1 million, $51.1 million, and $59.2 million, respectively. As of January 31, 2018, the aggregate intrinsic value of unvestedrestricted stock and restricted stock units was $106.0 million. 12. Net Income Per Ordinary ShareThe following table sets forth the computation of basic and diluted net income per ordinary share for the periods indicated: Year Ended January 31, 2018 2017 2016 (in thousands, except share and per share data) Numerator: Net income $18,852 $57,810 $76,508 Less: amount allocable to unvested early exercised options — — — Net income allocable to ordinary shareholders - basic $18,852 $57,810 $76,508 Undistributed earnings reallocated to ordinary shareholders — — — Net income allocable to ordinary shareholders - diluted $18,852 $57,810 $76,508 Denominator: Weighted-average ordinary shares outstanding 33,224,803 32,671,221 31,633,992 Less: weighted-average unvested early exercised options subject to repurchase — — (56)Weighted-average ordinary shares - basic 33,224,803 32,671,221 31,633,936 Effect of dilutive securities: Employee stock options 961,797 1,080,864 1,245,341 Restricted stock and restricted stock units 390,145 565,068 865,863 Employee stock purchase plan 6,405 10,571 10,569 Weighted-average ordinary shares - diluted 34,583,150 34,327,724 33,755,709 Net income per ordinary share: Basic $0.57 $1.77 $2.42 Diluted $0.55 $1.68 $2.27 The following weighted-average potentially dilutive securities were excluded from the computation of diluted net income per ordinary share as theireffect would have been antidilutive: Year Ended January 31, 2018 2017 2016 Options to purchase ordinary shares 280,907 343,936 109,958 Restricted stock and restricted stock units 907,208 891,952 163,994 Employee stock purchase plan 15,506 14,651 9,073 Early exercised options subject to repurchase — — 56 1,203,621 1,250,539 283,081 13. Income TaxesIncome before income taxes consisted of the following for the periods indicated: Year Ended January 31, 2018 2017 2016 (in thousands) U.S. operations $2,683 $3,092 $3,190 Non-U.S. operations 23,046 57,789 82,019 Income before income taxes $25,729 $60,881 $85,209 89 Income tax provision consisted of the following for the periods indicated: Year Ended January 31, 2018 2017 2016 (in thousands) Current: U.S. federal tax $3,321 $818 $5,273 U.S. state taxes 4 (212) 541 Non-U.S. foreign taxes 1,435 1,454 1,874 4,760 2,060 7,688 Deferred: U.S. federal tax 2,185 1,174 1,050 U.S. state taxes — — — Non-U.S. foreign taxes (68) (163) (37) 2,117 1,011 1,013 Provision for income taxes $6,877 $3,071 $8,701 The Company consists of a Cayman Islands parent company with various foreign and U.S. Subsidiaries. The primary jurisdiction where our foreignearnings are derived is the Cayman Islands, where the Company is domiciled. Under the current laws of the Cayman Islands, the Company is not subject totax on its income. For purposes of the reconciliation between the provision (benefit) for income taxes at the statutory rate and the effective tax rate, a notionalU.S. 33.8%, 34.0% and 34.0% rates are applied to pretax income as a result of the following for the periods indicated, respectively: Year Ended January 31, 2018 2017 2016 (in thousands) Provision at U.S. notional statutory rate $8,699 $20,700 $28,971 U.S. state taxes 2 (216) 541 Non-U.S. foreign tax differential (6,424) (18,357) (26,253)Stock-based compensation 4,645 1,605 2,896 U.S. R&D credit (2,408) (2,226) (3,517)Valuation allowance (1) 1,901 6,090 Change in tax rate 2,252 — — Other 112 (336) (27)Provision for income taxes $6,877 $3,071 $8,701 On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was enacted into law in the United States. The new tax legislation containsseveral provisions that will impact the Company, including the reduction of the corporate income tax rate from 35% to 21%, acceleration of business assetexpensing, and a reduction in the amount of executive pay that may qualify as a tax deduction, among others. The Tax Act’s new international rules,including the Global Intangible Low-Taxed Income (“GILTI”), the Base Erosion Anti-Avoidance Tax (“BEAT”), and the mandatory repatriation tax imposedon U.S. companies with certain foreign subsidiaries (the “Transition Tax”) are not expected to be applicable to the Company. However, these assessments arebased on preliminary review and analysis of the Tax Act and are subject to change as the Company continues to evaluate these highly complex rules asadditional interpretive guidance is issued. The decrease in the corporate income tax rate required the Company to remeasure its U.S. deferred tax assets andliabilities. The Company revalued its net deferred tax assets at December 22, 2017, which resulted in a decrease of deferred tax assets of $1.9 million and acorresponding increase in deferred tax expense. Due to the complexities of the new tax legislation, the Securities and Exchange Commission staff (“SEC Staff”) recognized that entities may nothave the necessary information available, prepared, or analyzed in reasonable detail to complete the accounting under ASC 740 for certain income tax effectsof the Act in the reporting period that includes the date of enactment. Under SAB 118, an entity would use something similar to the measurement period in abusiness combination. That is, to the extent an entity can complete the income tax accounting effects of the Act, the completed amount is reported (“Bucket1”). For matters that have not been completed, the entity would either (1) recognize provisional amounts to the extent that they are reasonably estimable andadjust them over time as more information becomes available (“Bucket 2”) or (2) for any specific income tax effects of the Act for which a reasonable estimatecannot be determined, continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the Act was signed intolaw (i.e., the entity would not adjust current or deferred taxes for those tax effects of the Act until a reasonable estimate can be determined) (“Bucket 3”).90 The measurement period begins in the period of enactment and ends when the entity obtained, prepared, and analyzed the information needed tocomplete the accounting requirements under ASC 740; however, the measurement period should not extend beyond one year from the enactment date. As wecomplete our analysis of the Tax Act, collect and prepare necessary data, and interpret any additional guidance issued by the U.S. Treasury Department, theIRS, and other standard-setting bodies, we will make adjustments to the provisional amounts. The Company expects to complete its analysis within themeasurement period, which is no more than one year beyond the enactment date. In connection with our initial analysis of the impact of the Tax Act, we have recorded provisional estimates in the period ended January 31, 2018for the following: the revaluation of deferred tax assets and liabilities to reflect the 21 percent corporate tax rate, whether to elect to expense or depreciatenew capital equipment, and the US state tax impact to the aforementioned items. The company has made reasonable estimates for each of these items;however it may be affected by other analyses related to the 2017 Act, including but not limited to, any deferred adjustments related to the filing of theCompany’s 2017 federal and state tax returns and further guidance yet to be issued. Temporary differences that gave rise to significant portions of the Company’s deferred tax assets and liabilities at January 31, 2018 and 2017 wereas follows: As of January 31, 2018 2017 (in thousands) Deferred tax assets: Federal and state credits $18,176 $14,782 Expenses not currently deductible 1,213 2,381 Stock-based compensation 2,899 3,561 Foreign deferred 229 161 Gross deferred tax assets 22,517 20,885 Valuation allowance (18,538) (15,061)Total deferred tax assets $3,979 $5,824 Deferred tax liabilities Property and equipment (1,655) (1,383)Foreign deferred — — Net deferred tax assets $2,324 $4,441 Tax valuation allowance for the periods indicated below were as follows: Deductions Additions Charged to Balance at Additional Charged to Expenses Balance at Beginning of Charged to Other or Other End of Period Expenses Account Accounts Period (in thousands) Tax Valuation Allowance Year ended January 31, 2018 $15,061 3,477 — — $18,538 Year ended January 31, 2017 $12,072 2,989 — — $15,061 Year ended January 31, 2016 $3,996 8,076 — — $12,072 91 The Company conducts its business in several countries and regions and is subject to taxation in those jurisdictions. The Company is incorporated inthe Cayman Islands with foreign subsidiaries in the U.S., China, Taiwan, Italy and other foreign countries and regions. As such, the Company’s worldwideoperating income is subject to varying tax rates and its effective tax rate is highly dependent upon the geographic distribution of its earnings or losses andthe tax laws and regulations in each geographical region. Consequently, the Company has experienced lower effective tax rates as a substantial amount of itsoperations are conducted in lower-tax jurisdictions. If the Company’s operational structure was to change in such a manner that would increase the amount ofoperating income subject to taxation in higher-tax jurisdictions, or if the Company was to commence operations in jurisdictions assessing relatively highertax rates, its effective tax rate could fluctuate significantly on a quarterly basis and/or be adversely affected. Dividend distributions received from theCompany’s U.S. subsidiary and certain other foreign subsidiaries may be subject to local country withholding taxes when, and if, distributed. Deferred taxliabilities have not been recorded on unremitted earnings of certain subsidiaries because management’s intent is to indefinitely reinvest any undistributedearnings in those subsidiaries. If dividend distributions from those subsidiaries were to occur, the liability as of January 31, 2018 would be $6.2 million.Cumulative undistributed earnings of foreign subsidiaries for which no deferred taxes have been provided approximated $51.0 million at January 31, 2018.As of January 31, 2018 and 2017, the Company had deferred tax assets (net of deferred tax liabilities) before valuation allowance, of $20.8 million and$19.5 million, respectively. Realization of the deferred tax assets is dependent upon future taxable income, if any, the amount and timing of which areuncertain.The Company also has Federal and California state research and development credit carryforwards of approximately $13.8 million and $17.1 million,respectively, at January 31, 2018. The Federal credits begin to expire in fiscal year 2033. The California credits can be carried forward indefinitely.The Company reports its U.S. state deferred tax assets and related valuation allowance, net of the U.S federal tax rate of 21%. As of January 31, 2018,the Company has recorded a valuation allowance of $18.5 million against all of its U.S. federal research credit and all U.S. state deferred tax assets due touncertainty regarding the future utilization of these deferred tax assets.Utilization of the research credit carryforwards may be subject to an annual limitation due to the ownership percentage change limitations as definedby the U.S. Internal Revenue Code Section 382, as amended, and similar state provisions. The annual limitation may result in the expiration of the U.S.Federal and state research credit carryforwards before utilization. The Company does not expect any tax credit carryforwards to expire as a result of aSection 382 limitation.The Company applies the provisions of FASB’s guidance on accounting for uncertainty in income taxes. As of January 31, 2018, the Company hadapproximately $34.1 million in unrecognized tax benefits, $22.5 million of which would affect the Company’s effective tax rate if recognized. The Companyhad reductions for tax positions in prior years of $11.3 million related to the effect of the corporate tax rate deduction from 35% to 21% as a result of theenactment of the Tax Act described above. The following table sets forth a reconciliation of the beginning and ending amount of unrecognized tax benefits: Year Ended January 31, 2018 2017 2016 (in thousands) Beginning balance: $37,977 $30,211 $4,671 Additions based on tax positions related to the current year 7,892 7,830 17,169 Additions for tax positions of prior years 28 911 8,810 Reductions for tax positions in prior years (11,313) — (37)Settlements for prior periods — — — Lapse of applicable statute of limitations (467) (975) (402)Ending balance: $34,117 $37,977 $30,211 The Company classified $5.2 million and $1.8 million of income tax liabilities as other long term liabilities as of January 31, 2018 and 2017,respectively, because payment of cash or settlement is not anticipated within one year from the balance sheet date.The Company recognizes interest and penalties related to uncertain tax positions as a component of income tax expense. The Company recorded$37,000 of interest expense and penalties related to uncertain tax positions for the year ended January 31, 2018 and recorded $64,000 benefit from interestaccruals as a result of reserve released due to the lapse of statute of limitations for the year ended January 31, 2017. The Company recorded noncurrentliabilities of $139,000 and $103,000 related to interest and penalties for uncertain tax positions at January 31, 2018 and 2017, respectively.92 The primary jurisdiction where our foreign earnings are derived is the Cayman Islands, where the Company is domiciled. The Company files incometax returns in the U.S. federal jurisdiction as well as many U.S. state and foreign jurisdictions. The tax years 2013 to 2017 remain open to examination by U.S.federal tax authorities. The tax years 2008 to 2017 remain open to examination by U.S. state tax authorities. The tax years 2012 to 2017 remain open toexamination by foreign tax authorities. Fiscal years outside of the normal statute of limitations remain open to audit by tax authorities due to tax attributesgenerated in those earlier years, which have been carried forward and may be audited in subsequent years when utilized.The Company believes that an adequate provision has been made for any adjustments that may result from tax examinations. However, the outcome oftax audits cannot be predicted with certainty. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’sexpectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs. Although timing of the resolutionand/or closure of audits is highly uncertain, the Company does not believe it is reasonably possible that its unrecognized tax benefits would materiallychange in the next 12 months.As of January 31, 2018, the Company’s long-term income taxes payable, including estimated interest and penalties, was approximately $5.4 million.The Company was unable to make a reasonably reliable estimate of the timing of payments in individual years due to uncertainties in the timing of taxaudits, if any, or their outcomes.On July 27, 2015, in Altera Corp. v. Commissioner, the United States Tax Court issued an opinion invalidating the 2003 final Treasury regulationsthat requires participants in a qualified cost-sharing arrangement to share stock-based compensation. At this time, the U.S. Department of the Treasury has notwithdrawn the requirement to include stock-based compensation in intercompany cost-sharing arrangements from its regulations. In February 2016, the IRSappealed the ruling to the United States Court of Appeals for the Ninth Circuit. Due to the uncertainty related to the final resolution of this issue, theCompany has not recorded tax benefits in its consolidated statements of operations for the year ended January 31, 2018. The Company will continue tomonitor ongoing developments and potential impacts to its consolidated financial statements. 14. Commitments and ContingenciesThe Company leases its principal and other facilities under operating lease agreements. Net operating lease expenses for the years ended January 31,2018, 2017 and 2016 were approximately $5.3 million, $7.6 million and $6.8 million, respectively. Future annual minimum payments under these operatingagreements with initial lease terms in excess of one year are as follows: As of January 31, 2018 Fiscal Year (in thousands) 2019 $2,988 2020 2,491 2021 905 2022 330 2023 83 Total future annual minimum lease payments $6,797 Upon adoption of Accounting Standards Update No. 2015-05, Intangible - Goodwill and Other - Internal-Use Software (Subtopic 350-40), anoncancelable on premise internal-use software license was accounted for as the acquisition of an intangible asset rather than a software license under anoperating lease. For the twelve months ended January 31, 2018, there was $3.0 million of amortization expense recorded in the consolidated statements ofoperations related to these software licenses. Contract Manufacturer CommitmentsThe Company’s components and products are procured and built by independent contract manufacturers based on sales forecasts. These forecastsinclude estimates of future demand, historical trends, analysis of sales and marketing activities, and adjustment of overall market conditions. The Companyregularly issues purchase orders to independent contract manufacturers which are cancelable only upon the agreement between the Company and the third-party. As of January 31, 2018 and 2017, total manufacturing purchase commitments were approximately $24.3 million and $23.9 million, respectively.93 IndemnificationThe Company, from time to time, in the normal course of business, indemnifies certain vendors with whom it enters into contractual relationships. TheCompany has agreed to hold the other party harmless against third-party claims in connection with the Company’s future products. The Company alsoindemnifies certain customers against third-party claims related to certain intellectual property matters. It is not possible to determine the maximum potentialamount of liability under these indemnification obligations due to the limited history of prior indemnification claims and the unique facts and circumstancesthat are likely to be involved in each particular claim. The Company has not made payments under these obligations and no liabilities have been recorded forthese obligations on the consolidated balance sheets as of January 31, 2018 and 2017, respectively. 15. Segment ReportingThe Company operates in one reportable segment related to the development and sales of low-power, high-definition (HD), Ultra HD videocompression, image processing and computer vision solutions. The Chief Executive Officer of the Company has been identified as the Chief OperatingDecision Maker (the “CODM”) and manages the Company’s operations as a whole. For the purpose of evaluating financial performance and allocatingresources, the CODM reviews financial information presented on a consolidated basis accompanied by information by customer and geographic region.Geographic RevenueThe following table sets forth the Company’s revenue by geographic region based on bill-to location for the periods indicated. Prior period revenueamounts by geographic region have been reclassified to conform to the fiscal year 2018 presentation. These reclassifications did not impact total revenues inthe prior periods. Year Ended January 31, 2018 2017 2016 (in thousands) Taiwan $174,486 $185,225 $210,677 Asia Pacific 57,862 42,461 77,976 Europe 45,185 71,556 8,879 North America other than United States 11,110 3,686 9,487 United States 6,759 7,369 9,354 Total revenue $295,402 $310,297 $316,373 As of January 31, 2018, substantially all of the Company’s property and equipment were located in the United States, Asia Pacific region and Europewith approximate net amounts of $2.7 million, $2.4 million and $1.3 million, respectively. As of January 31, 2017, substantially all of the Company’sproperty and equipment were located in the United States and Asia Pacific region with approximate net amounts of $2.1 million and $2.3 million,respectively.Major CustomersFor the years ended January 31, 2018 and 2017, the customers representing 10% or more of revenue and accounts receivable were Wintech, theCompany’s distributor, and GoPro, a direct OEM customer. In fiscal year 2018 and 2017, Wintech accounted for approximately 59% and 60% of totalrevenue, respectively. In fiscal year 2018 and 2017, GoPro accounted for approximately 12% and 19% of total revenue, respectively. The customersrepresenting 10% or more of revenue and accounts receivable for the year ended January 31, 2016 were Wintech and Chicony Electronics Co., Ltd., orChicony, a direct ODM customer, which accounted for approximately 67% and 21% of total revenue, respectively. Accounts receivable from Wintech andGoPro accounted for approximately $9.8 million and $9.5 million as of January 31, 2018, respectively. Accounts receivable from Wintech and GoProaccounted for approximately $19.3 million and $11.3 million as of January 31, 2017, respectively. 16. Related-Party TransactionsThe Company considers an entity to be a related party if it owns more than 10% of the Company’s total voting stock at the end of each reportingperiod or if an officer or employee of an entity also serves on the Company’s board of directors or if it is a significant shareholder and has material businesstransactions with the Company.94 The Company enters into software license agreements with Cadence Design Systems, Inc. (“Cadence”) from time to time. The Chief Executive Officerof Cadence, who is also the President and a Director of Cadence, was a member of the Company’s Board of Directors until June 7, 2017. In March 2017, theCompany entered into a noncancelable software license agreement with Cadence. Under this agreement, the Company committed to pay an aggregateamount of $10.3 million through January 2020. The Company paid $3.6 million, $2.8 million and $2.8 million of license fee for the years ended January 31,2018, 2017 and 2016, respectively. License amortization expense related to these agreements included in research and development expense wasapproximately $3.2 million, $2.9 million and $2.7 million for the years ended January 31, 2018, 2017 and 2016, respectively. 17. Subsequent Events From February 1, 2018 to March 29, 2018, the Company repurchased a total of 197,682 shares for approximately $9.5 million in cash. As of March 29,2018, the Company had repurchased a total of 1,697,566 shares for approximately $84.5 million in cash and there was approximately $22.2 million availablefor repurchases under the Company’s repurchase program through June 30, 2018. ITEM 16.FORM 10-K SUMMARYNone. 95 EXHIBITS INDEX ExhibitNumber Description 2.1(1) Quota Purchase Agreement, dated as of June 25, 2015, by and among the Registrant, the University of Parma, Alberto Broggi, MassimoBertozzi, Paolo Grisler, Pietro Cerri, Rean Fedriga, Paolo Medici, Luca Bombini, Stefano Cattani, Mirko Felisa, Pier Paolo Porta, andPaolo Zani. 3.1(2) Amended and Restated Memorandum of Association and Second Amended and Restated Articles of Association of the Registrant 4.1(3) Third Amended and Restated Investors’ Rights Agreement, dated January 5, 2012, by and among Ambarella, Inc. and certain of itsshareholders 10.1.1(2)* Amended and Restated 2004 Stock Plan 10.1.2(4)* Form of Stock Option Agreement under Amended and Restated 2004 Stock Plan 10.1.3(2)* Form of Restricted Stock Unit Award Agreement under Amended and Restated 2004 Stock Plan 10.2.1(5)* Amended and Restated 2012 Equity Incentive Plan 10.2.2(2)* Form of Stock Option Agreement under 2012 Equity Incentive Plan 10.2.3(2)* Form of Restricted Stock Agreement under 2012 Equity Incentive Plan 10.2.4(2)* Form of Restricted Stock Unit Agreement under 2012 Equity Incentive Plan 10.2.5(5)* Form of Performance-Based Restricted Stock Unit Agreement under 2012 Equity Incentive Plan 10.3(1)* Amended and Restated 2012 Employee Stock Purchase Plan 10.4(2)* Form of Indemnification Agreement 10.5(4)* Offer Letter entered into by Ambarella, Inc. with George Laplante dated March 3, 2011, as amended 10.6.1(4)* Form of Change of Control and Severance Agreement, entered into by Ambarella, Inc. with the Chief Executive Officer, Chief FinancialOfficer and Chief Technology Officer 10.6.2(4)* Form of Change of Control and Severance Agreement, entered into by Ambarella, Inc. with executive officers other than the ChiefExecutive Officer, Chief Financial Officer and Chief Technology Officer 10.7.4(6)* Description of Executive Bonus Plan For Fiscal Year 2016 10.7.5(7)* Description of Executive Bonus Plan For Fiscal Year 2017 10.7.6(8)* Description of Executive Bonus Plan For Fiscal Year 2018 10.8.1(9) Sales Representative Agreement dated January 31, 2011 by and between Ambarella, Inc. and WT Microelectronics Co., Ltd. 10.8.2(9) Amendment No. 1 to Sales Representative Agreement dated February 1, 2012 by and between Ambarella, Inc. andWT Microelectronics Co., Ltd. 10.8.3(10) Amendment No. 2 to Sales Representative Agreement dated October 1, 2012 by and between Ambarella, Inc. andWT Microelectronics Co., Ltd. 10.8.4 (1) Amendment to the Sales Representative Agreement dated August 1, 2015 by and between Ambarella, Inc. and WT MicroelectronicsCo., Ltd. 10.9.1(11) Lease Agreement dated March 1, 2013 by and between Ambarella Corporation and Westcore Jay, LLC. 10.9.2 (1) Second Amendment to Lease Agreement dated as of August 27, 2015 by and between Ambarella Corporation and DPF JAY OWNER,LLC. 21.1(12) List of subsidiaries of the registrant 96 23.1 Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm 24.1 Power of Attorney (included in signature page). 31.1 Certification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, asamended. 31.2 Certification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, asamended. 32.1± Certification of Principal Executive Officer and Principal Financial Officer Required Under Rule 13a-14(b) of the Securities ExchangeAct of 1934, as amended, and 18 U.S.C. §1350. 101.INS XBRL Instance Document 101.SCH XBRL Taxonomy Schema Linkbase Document 101.CAL XBRL Taxonomy Calculation Linkbase Document 101.DEF XBRL Taxonomy Definition Linkbase Document 101.LAB XBRL Taxonomy Labels Linkbase Document 101.PRE XBRL Taxonomy Presentation Linkbase Document (1)Incorporated by reference to the Form 10-Q filed on September 8, 2015.(2)Incorporated by reference to the Form S-1/A (No. 333-174838) filed on September 13, 2012.(3)Incorporated by reference to the Form S-1/A (No. 333-174838) filed on August 22, 2012.(4)Incorporated by reference to the Form S-1 (No. 333-174838) filed on June 10, 2011.(5)Incorporated by reference to the Form 10-K filed on March 30, 2017.(6)Incorporated by reference to the Form 8-K filed on March 2, 2015.(7)Incorporated by reference to the Form 8-K filed on June 6, 2016.(8)Incorporated by reference to the Form 8-K filed on June 6, 2017.(9)Incorporated by reference to the Form S-1/A (No. 333-174838) filed on September 26, 2012.(10)Incorporated by reference to the Form S-1/A (No. 333-174838) filed on October 5, 2012.(11)Incorporated by reference to the Form 10-K filed on April 4, 2013.(12)Incorporated by reference to the Form 10-K filed on March 25, 2016. *Management contracts or compensation plans or arrangements in which directors or executive officers are eligible to participate±In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 33-8238 and 34-47986, Final Rule: Management’s Reports on InternalControl Over Financial Reporting and Certification of Disclosure in Exchange Act Periodic Reports, the certifications furnished in Exhibits 32.1hereto are deemed to accompany this Form 10-K and will not be deemed “filed” for purposes of Section 18 of the Exchange Act. Such certificationswill not be deemed to be incorporated by reference into any filings under the Securities Act or the Exchange Act, except to the extent that theregistrant specifically incorporates it by reference97 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized, on March 30, 2018. AMBARELLA, INC. By: /s/ George Laplante George Laplante, Chief Financial OfficerPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints George Laplante ashis true and lawful agent, proxy and attorney-in-fact, with full power of substitution and resubstitution, for him and in his name, place and stead, in any andall capacities, to (i) act on, sign, and file with the Securities and Exchange Commission any and all amendments to this Annual Report on Form 10-K,together with all schedules and exhibits thereto, (ii) act on, sign, and file such certificates, instruments, agreements and other documents as may be necessaryor appropriate in connection therewith, and (iii) take any and all actions that may be necessary or appropriate to be done, as fully for all intents and purposesas he might or could do in person, hereby approving, ratifying and confirming all that such agent, proxy and attorney-in-fact or any of his substitutes maylawfully do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on March 30, 2018. Signature Title /s/ Feng-Ming Wang President, Chief Executive Officer, ExecutiveChairman and Director (Principal Executive Officer)Feng-Ming Wang /s/ George Laplante Chief Financial Officer (Principal Financial and Accounting Officer)George Laplante /s/ Les Kohn Chief Technical Officer and DirectorLes Kohn /s/ Chenming C. Hu DirectorChenming C. Hu /s/ Christopher B. Paisley DirectorChristopher B. Paisley /s/ Jeff Richardson DirectorJeff Richardson /s/ Hsiao-Wuen Hon DirectorHsiao-Wuen Hon /s/ Andrew W. Verhalen DirectorAndrew W. Verhalen 98Exhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We hereby consent to the incorporation by reference in the Registration Statement on Form S‑8 (Nos. 333-184506, 333-187730, 333-195078, 333-203094, 333-210405 and 333-217037) of Ambarella, Inc. of our report dated March 30, 2018 relating to the financial statements and the effectiveness ofinternal control over financial reporting, which appears in this Form 10‑K./s/ PricewaterhouseCoopers LLPSan Jose, CaliforniaMarch 30, 2018Exhibit 31.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICERCertification of Principal Executive Officer Required Under Rule 13a-14(a) and 15d-14(a) of theSecurities Exchange Act of 1934, as amended.I, Feng-Ming Wang, certify that:1. I have reviewed this Annual Report on Form 10-K of Ambarella, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 30, 2018 /s/ Feng-Ming Wang Feng-Ming WangPresident and Chief Executive Officer(Principal Executive Officer) Exhibit 31.2CERTIFICATION OF PRINCIPAL FINANCIAL OFFICERCertification of Principal Financial Officer Required Under Rule 13a-14(a) and 15d-14(a) of theSecurities Exchange Act of 1934, as amended.I, George Laplante, certify that:1. I have reviewed this Annual Report on Form 10-K of Ambarella, Inc.;2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theregistrant and have:(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, toensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared;(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposesin accordance with generally accepted accounting principles;(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recentfiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theregistrant’s internal control over financial reporting; and5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controlover financial reporting.Date: March 30, 2018 /s/ George Laplante George LaplanteChief Financial Officer(Principal Financial and Accounting Officer) Exhibit 32.1CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, Feng-Ming Wang, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the AnnualReport of Ambarella, Inc. on Form 10-K for the fiscal year ended January 31, 2018 fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financialcondition and results of operations of Ambarella, Inc.Date: March 30, 2018 By: /s/ Feng-Ming WangName: Feng-Ming WangTitle: President and Chief Executive OfficerI, George Laplante, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the AnnualReport of Ambarella, Inc. on Form 10-K for the fiscal year ended January 31, 2018 fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934 and that information contained in such Annual Report on Form 10-K fairly presents in all material respects the financialcondition and results of operations of Ambarella, Inc.Date: March 30, 2018 By: /s/ George LaplanteName: George LaplanteTitle: Chief Financial Officer 

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